Aug 31, 2009

How Apple Will Sell 10 Million iPhones...

By Brian Caulfield,

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Burlingame,Calif. -Investors are agonizing over Apple's stock price. Analysts are worried about iPod sales. Apple co-founder Steve Wozniak has even fretted about the MacBook Air's lack of an optical drive..

But don't worry. Despite some recent doubts, Apple should meet its goal of selling 10 million phones in 2008.

The company swatted down calls Tuesday for it to spend some of its $18.4 billion hoard of cash and short-term investments on a dividend or stock buyback program, despite a 37% slide in Apple (nasdaq: AAPL - news - people ) shares this year to $124.62 at the close of trading Tuesday. Despite a slowing U.S. economy, Apple Chief Executive Steve Jobs is sticking to his audacious goal of grabbing 1% of the worldwide mobile phone market by the end of 2008.


It won't be easy. On Jan. 15, Apple said it had sold 4 million iPhones since it went on sale June 29. That amounts to about 19,900 a day. To hit Jobs' goal, Apple will have to pick up the pace, selling 27,322 handsets a day, seven days a week, for all of 2008. No matter that the crest of iPhone hype in the United States seems to have passed. Guess we should look forward to a lot more ads.

However, while iPhone fever may be fading here, demand around the world is growing. Unlocked iPhones are popping up in markets as far away as China and Indonesia. And while Apple reaps fees that analysts estimate at $12 per subscriber per month from its carrier partners, analysts estimate Apple still makes 35% gross margins on the handset alone. Apple looks at the problem "with a little bit of a smile," Apple Chief Operating Officer Tim Cook said at an investor conference last month.

So who's going to be buying all those iPhones? Cook, playing coy, will only say that Apple will sell iPhones in India and China "one day." Analysts are already penciling in an October launch in key Asian markets.


What may come even sooner, however, is an iPhone able to take advantage of next-generation--or so-called 3G--mobile data networks. While hooked into Wi-Fi hot spots, the iPhone introduced last year can blaze through Web pages and e-mail. When relying on the AT&T (nyse: T - news - people ) EDGE data network, however, its performance is pokey. Even Wozniak has expressed dissatisfaction. "I was really disappointed when the iPhone was introduced," Wozniak reportedly said earlier this week during a speaking tour of Australia.

Expect a 3G iPhone to fix that. AT&T has been building out its 3G network in preparation. (See: " AT&T's Stealthy Plans")

RBC Capital Markets analyst Mike Abramsky figures a 3G iPhone to be launched in July will account for 25% to 30% of this year's iPhone shipments. "3G unleashes the iPhone's high-res screen, multi-touch interface, full-featured browser and media experiences," Abramsky wrote in a note to investors Monday.

Many readers of said that they would pay up for a 3G iPhone--even if they already own the current model. (See Reader Feedback in " Sorry First Adopters--A Better iPhone Is On The Way")


And better: when the 3G version is available, analysts are betting the price of EDGE iPhones will fall, spurring more demand.

Read the entire article here...

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