Link 1 Phone Magazine
http://www.phonemag.com/att-defy-predictions-with-strong-q4-performance-01371.php
Link 2 CNet
http://www.news.com/8301-13579_3-9857622-37.html?part=rss&subj=news&tag=2547-1_3-0-20

January 24, 2008 12:51 PM PST
Report: iPhones piling up at AT&T stores
Posted by Tom Krazit CNet
CNET

Is demand for the iPhone in America already starting to wane?

AT&T, the exclusive American carrier of the iPhone, activated just
900,000 iPhones during the fourth quarter, the company revealed during
its earnings conference call Thursday. It wrapped up the year with
"just at or slightly under 2 million iPhone customers," according to
company executives.

Apple announced at Macworld that it has sold 4 million iPhones through
the middle of January, and Toni Sacconaghi, a financial analyst with
Sanford C. Bernstein, thinks the gap between the figures means that
Apple might have a demand problem. He released a research note
Thursday after AT&T's earnings saying that the carrier's figures imply
that an awful lot of inventory is building up at Apple's channel
partners.

Are people getting tired of the iPhone, or just holding out for iPhone
2.0?
(Credit: CNET Networks)

"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," Sacconaghi wrote in his report.

Let's walk through the theory. Apple said on Tuesday that it sold 3.7
million iPhones in 2007. But AT&T said Thursday that it ended 2007
with around 2 million iPhone customers.

One huge difference between the third quarter and the fourth--other
than the temperature--was that the iPhone became available for sale in
the U.K., Germany, and France through other carriers. But even the
most optimistic estimates for iPhone sales in Europe didn't come
within shouting distance of 1.7 million units. O2, the exclusive
iPhone carrier in the U.K., has said it expects to have sold 200,000
iPhones by around 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 to find. (Sacconaghi only estimates
European sales at 350,000, so he uses 1.4 million.) The first theory
would be that iPhone unlocking is rampant.

But how is that possible? The Great iPhone Hack settled into a bit of
a stalemate with the release of the 1.1.2 firmware. On the day the
iPhone was released in the U.K. and Germany, Apple released the 1.1.2
firmware upgrade for older iPhone users but included an updated
version of the iPhone's bootloader--which loads software from storage--
on all new iPhones that made unlocking the phone to run on other
networks much, much harder and virtually impossible through software.

After venturing a guess in October that as many as 250,000 iPhones had
been purchased with the intention of unlocking, Apple Chief Operating
Officer Tim Cook declined to make an estimate this time around, saying
the company didn't have a reliable way of estimating the total.
According to Sacconaghi, even if you assume 20 percent of all iPhones
purchased in 2007 were bought with the intention of unlocking--which
was Cook's rough estimate in October--that still leaves 670,000
iPhones unaccounted for in 2007. Where are they?

Apparently, they're on a shelf somewhere. "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," Sacconaghi wrote.

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. It's not hard to imagine that a lot of people are
waiting for a faster iPhone.

But it is hard to believe the iPhone phenomenon might already be
subsiding in the U.S. after just six months, although Wall Street is
clearly worried about Apple this week despite soaring Mac shipments
and an excellent holiday quarter. Apple's stock has lost 15 percent of
its value this week. Granted, it was a bad week for lots of companies,
but even in the face of a broader rally Wednesday and Thursday, the
stock continued to shed value Thursday.

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