The case of the missing iPhones

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

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.