The case of the missing iPhones

The case of the missing iPhones

Summary: Steve Jobs at Macworld noted that Apple had sold 4 million iPhones through mid January and 3.7 million at the end of December.

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Steve Jobs at Macworld noted that Apple had sold 4 million iPhones through mid January and 3.7 million at the end of December. But AT&T has activated about 2 million of those. Theories abound about where those missing iPhones may be stashed.

Pondering the case of the missing iPhones has been a hot topic every since Apple reported its financial results. In fact, it's almost become a sport. Here's a look at some the two primary theories being floated about iPhone inventory and my take.

Theory 1: Uh oh. Apple has a demand problem (and a fat channel). This theory is outlined nicely by Tom Krazit. Given there's a 2 million iPhone gap between Apple and AT&T figures it's quite possible that these devices are wallowing in the channel. Toni Sacconaghi, an analyst at Sanford Bernstein rings the demand/bloated channel bell. Sacconaghi reckons that there's lower demand and slower iPhone sales ahead.

My take: This theory could very well come from a Chinese newspaper report saying that Apple's OEMs have cut their production schedule from 2 million iPhones to something more in the range of 1 million to 1.2 million units. I'm skeptical of the report largely because other analysts such as BMO Capital Markets analyst Keith Bachman reckon that Apple has about 500,000 phones in its channel across the globe. Bachman arrives at that 500,000 tally be taking the difference between the AT&T and Apple December figures (2 million and 3.7 million, respectively) and factoring in iPhone sold in Europe (400,000 and sales of unlocked phones). In other words, an inventory level of 500,000 iPhones spread across four carriers globally doesn't seem unreasonable. UBS analyst Ben Reitzes estimates that Apple's iPhone inventory is about 350,000. Theory 2: We don't know where the iPhones are because they were sold, unlocked and spread around the globe. Bachman reckons that 20 percent the iPhone sales thus far have been unlocked. That equates to about 750,000 iPhones.

UBS analyst Ben Reitzes puts the unlocked iPhone count higher than Bachman at about 1 million. Reitzes writes:

Since AAPL sold over 4mm to date, it could imply that up to 1mm iPhones in ‘07 were either “unlocked” (many shipped overseas) or not activated (we calculate only 350k in channel inventory at 4Q-end). We believe news points to strong interest in iPhone globally, but could mean demand was actually lower in the U.S. and that AAPL’s carrier payments could be lower.

My take: Apple is still learning about the unlocked issue, which could account for a lot of the supply chain banter. It's safe to assume that Reitzes figure may be closer to the truth when it comes to unlocked iPhone sales. The downside is that Apple gets less revenue. On the upside though, there is a blue print for sales of unlocked iPhone sales if Apple gets out of its AT&T deal in the future.

Meanwhile, Apple CFO Peter Oppenheimer said on the company's earnings conference call that the number of unlocked iPhones sold was "significant," but he wouldn't elaborate. If unlocked iPhone sales are significant to Apple it's a big issue.

Theory 3: AT&T and other carriers may not have caught the last few days of December in their counts.

My take: This theory is the most boring of the bunch, but also quite plausible. If you got an iPhone Dec. 27 and didn't activate it until Jan. 2 you missed the quarter. Does this discrepancy account for 1.7 million iPhones. No. But it does indicate that Apple's channel isn't as bloated as people may think.

Topics: Enterprise Software, Apple, iPhone, Mobility

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20 comments
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  • #2 is on the money

    Arrests in NY over the theft of 300 iphones enroute from Valley Stream, NY (that's near Kennedy Airport) to Hong Kong confirms there's a gray market in iphones.

    How the NY shipper ended up with 300 of these for export to a place where iphones are not on the market, is anyone's guess. One has to assume that there's a lot more of this. This shipment was only found out due to the theft being discovered overseas and reported back to NY.

    All the NY press had coverage of this. Here's a link to on story on it. You can google news search for more stories on it.

    http://wcbstv.com/watercooler/iphone.heist.longisland.2.634777.html
    j.m.galvin
  • A mixed bag

    Activation numbers for ATT don't take into consideration the legal
    activations overseas, which would be a noticeable number. There
    would still be :yet to be activated" iPhones, but I doubt if that number
    is very high.

    Unlocked phones is obviously the major portion of the "missing"
    iPhones as a lot of people want one, but don't want ATT for one
    reason or another. That's a situation that will be around for 5 years
    (if that is the length of the ATT agreement) and then it may well
    disappear in the US almost overnight.
    Ken_z
  • RE: The case of the missing iPhones

    Well AT&T is not the only ones selling the iphone, how about sales in Europe ???
    mrOSX
    • Not enough

      They didn't sell enough in Europe to even come close to the missing number.

      Last estimate I read was in the nature of 400,000, but some have said it could be as few as 200,000. That's still 1.3-1.5 million phones missing.

      Clearly, people are unlocking them and not registering them with AT&T.
      laura.b
  • Unlocked...

    With unlocking of each firmware release coming faster than the previous, my money (or not) is on unlocked phones.

    This means if Apple drops the price another $50 to $100, that unlocked phones would be bought at an even higher rate.
    Eriamjh
  • Number 1 being the most likely scenerio

    as both companies have been selling products for a great many years, and yet we would be led to believe that it is just some accounting issues between the two?
    GuidingLight
  • RE: The case of the missing iPhones

    This article from TUAW may give a clue as to where some
    of the iPhones are going.

    http://www.tuaw.com/2008/01/25/dumb-and-
    dumber-truck-drivers-replace-iphones-with-paper/
    WetcoastBob
  • The above link does not work

    http://www.tuaw.com/2008/01/25/dumb-and-dumber-truck-drivers-replace-
    iphones-with-paper/

    Just go to TUAW.com and scroll down the blog until you come to the story about truck
    drivers replacing iPhones with paper.
    WetcoastBob
  • The non-ATandT iPhones went ex-USA to hackers

    The cheap dollar has Europeans buying half a dozen iPhones and bringing them back to their friends.

    Especially so just before Christmas.

    See <a href="http://fussnotes.typepad.com/plexnex/2007/12/xmlcon-2007-not.html">this post</a>...

    http://fussnotes.typepad.com/plexnex/2007/12/xmlcon-2007-not.html
    swhiser
  • RE: The case of the missing iPhones

    Well, lets put it this way: of the dozen iPhone users I
    know personally 12 of them have them unlocked ....

    I know, I know, my statistics professor would hate me .-)
    Bart-Jan
  • I wonder

    How many existing AT&T customers just swapped the SIM from their former phone into an Iphone without additional activation.
    don3605
  • The more likely case...

    Is that Apple is lying. We all know that Wall Street is a major catalyst for corporate lies. Apple is no saint.
    Narg
  • This is an easy one.

    Apple is reporting units shipped as units sold. They are sitting at AT&T stores and elsewhere in warehouses, unsold to end users.
    <br>
    Apple's numbers are always skewed higher than reality.
    xuniL_z
  • Theory 4...

    The iPhones in question are all hanging out with the millions of Vista licenses sold but not in use. It's a huge shelfware party and everyone is invited.
    jasonp9
  • Another theory...

    Some companies count units "shipped" as units "sold". Common practice in the wholesale apparel world and could be happening here.
    SigmaX
  • RE: The case of the missing iPhones

    And what about the people who may have bought one
    just to find out that where they live doesn't fall into any
    area that AT&T has coverage. Or maybe they just wanted
    something more than just an iPod.
    creep144
  • RE: The case of the missing iPhones

    Mexico has 52 million mobile phone subscribers. Go anywhere in Mexico and you will se A LOT of unlocked iphones.
    pityboy
  • RE: The case of the missing iPhones

    There are no missing iPhones. They are ALL OVER THE WORLD.

    The competition's worst nightmare...the iPhone has gone globally viral.
    hardmanb
  • What do they expect?

    The worst thing you can do to the hacker (and user) community is hold up a piece of new technology and say "We've locked this down to limit your options". It then becomes a challenge...

    <Sent from my unlocked 1.1.3 iPhone!>
    pho1
  • RE: The case of the missing iPhones

    Yep the channel operators are asking unreasonable prices or putting unreasonable restrictions on supply.The market wins in the end.Lesson to be learned here the channel strategy has failed so sack the exec who did the poor deals open up the market and maximise production before the design becomes obsolete or competitors catch up with competing products.I for one will buy the competition if Apple messess me around or (o2 uk).Nothing worse for future sales than disappointed consumers.
    The Management consultant