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iPhone bubble beginning to burst?
…US AT&T see PDA pile up

By Tom Krazit

Published: Friday 25 January 2008

AT&T, the exclusive US carrier of the iPhone, activated just 900,000 iPhones during the fourth quarter, the company revealed during a profits conference call yesterday, yet Apple announced at Macworld it has sold four million iPhones through the middle of January.

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AT&T wrapped up 2007 with "just at or slightly under two million iPhone customers", according to company executives.

Toni Sacconaghi, a financial analyst with Sanford C Bernstein, thinks the gap between the figures means Apple might have a demand problem.

Sacconaghi wrote: "We believe the data points to a significant amount of iPhone channel inventory...This is negative in two ways: 1: it indicates end-user demand for iPhone is lower than many investors may think based on Apple's sales figure and 2: it points to slower iPhone sales in the current quarter, since much of this inventory is likely to be drawn down."

One difference between the third and fourth quarter was the iPhone became available for sale in France, Germany and the UK through other carriers. But even the most optimistic estimates for iPhone sales in Europe didn't reach 1.7 million units. O2, the exclusive iPhone carrier in the UK, said it expected to have sold 200,000 iPhones by this time, and France's Orange and Germany's T-Mobile were expected to sell about 100,000 units each in 2007.

So that leaves 1.3 million iPhones unaccounted for, which Sacconaghi attributes to the fact iPhones are still in distribution points. He wrote: "Excluding Apple's own stores, there are about 4,400 total iPhone distribution points worldwide, suggesting each had more than 150 units of channel inventory at the beginning of this year. We believe channel inventory likely built even more in the first few weeks of 2008, given Apple continued to ship iPhones at a high run rate."

Apple still expects to sell 10 million iPhones during 2008. It can easily do that with launches in Asia and other European countries, a new 3G model, a price cut, significant new applications delivered in February alongside the release of the software developer's kit - or all of those factors.

But it is hard to believe the iPhone phenomenon might already be subsiding in the US after just six months, although Apple's stock has lost 15 per cent of its value this week, despite soaring Mac shipments and an excellent holiday quarter.