- Aug 23, 2003
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NEW YORK -(Dow Jones)- Some luster may be coming off of Apple Inc.'s (AAPL) iPhone.
Rising concerns about iPhone sales, prompted by AT&T Inc.'s (T) earnings report Tuesday and talk of slackening demand, come a day before Apple reports its quarterly earnings and a day after the stock set another all-time high. The concerns have Wall Street reexamining its lofty iPhone expectations and speculating about the product's next version.
AT&T said on Tuesday that 146,000 new iPhone subscribers signed up in the first two days of its launch - wildly successful for any other consumer- electronic product but a disappointment when compared with Wall Street's sky- high expectations. The figure, as well as speculation over a slowdown in demand has Apple - trading near its all-time high - taking a major hit in its share price.
Apple shares recently fell $3.63, or 2.5%, to $140.07. AT&T shares slipped 0.6% to $39.80 on second-quarter results roughly in line with expectations.
The iPhone seemed poised to disappoint, given the ramping sales expectations for the much ballyhooed device, which in some circles earned the moniker "God Machine." After the first weekend, Goldman Sachs projected sales of 700,000 phones over the first three days.
"I think it was a matter of expectations getting wildly out of control," said Andy Hargreaves, an analyst for Pacific Crest Securities. He had forecast 400, 000 iPhones would be sold in the first weekend.
Many of the Wall Street analysts were taking their cues from the Apple stores in New York, which likely painted an overly optimistic picture of demand for the device, he said.
Hargreaves noted, however, that other analysts were confused by orders made over the Internet, which wouldn't be recognized for weeks since the iPhone didn't ship out immediately.
Apple's stock has soared with the buzz. Shares have risen 65% since the beginning of the year, and they hit a 52-week high of $145.22 on Monday. Shares are slipping ahead of the company's quarterly earnings report, expected Wednesday.
Apple trades at 39.2 times analysts' 2007 earnings estimate. The stock is trading at valuation levels not seen since January 2006, according to FactSet Research. In the six months that followed, Apple shares fell 39%.
Hargreaves said the disappointing first-weekend figure wouldn't affect his longer-term estimates. He believes Apple will sell 1.2 million iPhones for the fiscal year ending in September, 3 million for the calendar year, and 9 million in 2008.
"I think you'll have a problem if you support numbers that are exponentially out of whack with that," he said.
The analyst owns shares of Apple.
Weaker demand could drive AT&T and Apple to work on bringing out a second- generation iPhone to the market sooner than expected. Indeed, CIBC World Markets analyst Ittai Kidron believes a 3G version will hit the U.S. market in November, ahead of the holiday season and earlier than expected.
"Our recent survey of iPhone buyers suggested that the key shortcoming of the current device is its poor data connectivity," Kidron said. "This isn't a surprise and Apple's CEO Steve Jobs admitted the iPhone's cellular connectivity can use an improvement. We now believe the 'improvement' could come soon."
For all of its nifty features and slick interface, the iPhone has nearly universally been criticized for its slow cellular connection. Apple's exclusive deal with AT&T meant it was tethered to its 2G Edge network, which is slower than the networks used by Verizon Wireless - jointly owned by Verizon Communications Inc. (VZ) and Vodafone Group PLC (VOD) - and Sprint Nextel Corp. (S).
AT&T's network runs on a technology that is more widely used around the world, which made it more of an attractive choice for Apple. But AT&T is also behind carriers overseas in building out a third-generation, or 3G, network. Its high- speed cellular network is currently available in more than 160 markets.
Noise over the slower network connection have some holding off on purchasing such a big-ticket item until the next, faster version launches. Kidron said in a note that he believes demand for the iPhone has slowed significantly over the past 10 days and that stores are stocked with the devices.
Possibly helping Apple is a "bounty" that AT&T pays it, according to the TheStreet.com. The report has AT&T paying between $150 and $200 per phone in addition to $9 a month per phone over the lifetime of the typical two-year contract.
AT&T declined to comment on the report. Apple wasn't immediately available to comment.
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This is the same pattern that hit the PS3 post launch (which, coincidentally, had the same $499/$599 launch price). Huge hype, huge sales for the first week, lots of reseller sales, and then sales took a sharp drop because the price point was simply too far off "mass market" levels.
NEW YORK -(Dow Jones)- Some luster may be coming off of Apple Inc.'s (AAPL) iPhone.
Rising concerns about iPhone sales, prompted by AT&T Inc.'s (T) earnings report Tuesday and talk of slackening demand, come a day before Apple reports its quarterly earnings and a day after the stock set another all-time high. The concerns have Wall Street reexamining its lofty iPhone expectations and speculating about the product's next version.
AT&T said on Tuesday that 146,000 new iPhone subscribers signed up in the first two days of its launch - wildly successful for any other consumer- electronic product but a disappointment when compared with Wall Street's sky- high expectations. The figure, as well as speculation over a slowdown in demand has Apple - trading near its all-time high - taking a major hit in its share price.
Apple shares recently fell $3.63, or 2.5%, to $140.07. AT&T shares slipped 0.6% to $39.80 on second-quarter results roughly in line with expectations.
The iPhone seemed poised to disappoint, given the ramping sales expectations for the much ballyhooed device, which in some circles earned the moniker "God Machine." After the first weekend, Goldman Sachs projected sales of 700,000 phones over the first three days.
"I think it was a matter of expectations getting wildly out of control," said Andy Hargreaves, an analyst for Pacific Crest Securities. He had forecast 400, 000 iPhones would be sold in the first weekend.
Many of the Wall Street analysts were taking their cues from the Apple stores in New York, which likely painted an overly optimistic picture of demand for the device, he said.
Hargreaves noted, however, that other analysts were confused by orders made over the Internet, which wouldn't be recognized for weeks since the iPhone didn't ship out immediately.
Apple's stock has soared with the buzz. Shares have risen 65% since the beginning of the year, and they hit a 52-week high of $145.22 on Monday. Shares are slipping ahead of the company's quarterly earnings report, expected Wednesday.
Apple trades at 39.2 times analysts' 2007 earnings estimate. The stock is trading at valuation levels not seen since January 2006, according to FactSet Research. In the six months that followed, Apple shares fell 39%.
Hargreaves said the disappointing first-weekend figure wouldn't affect his longer-term estimates. He believes Apple will sell 1.2 million iPhones for the fiscal year ending in September, 3 million for the calendar year, and 9 million in 2008.
"I think you'll have a problem if you support numbers that are exponentially out of whack with that," he said.
The analyst owns shares of Apple.
Weaker demand could drive AT&T and Apple to work on bringing out a second- generation iPhone to the market sooner than expected. Indeed, CIBC World Markets analyst Ittai Kidron believes a 3G version will hit the U.S. market in November, ahead of the holiday season and earlier than expected.
"Our recent survey of iPhone buyers suggested that the key shortcoming of the current device is its poor data connectivity," Kidron said. "This isn't a surprise and Apple's CEO Steve Jobs admitted the iPhone's cellular connectivity can use an improvement. We now believe the 'improvement' could come soon."
For all of its nifty features and slick interface, the iPhone has nearly universally been criticized for its slow cellular connection. Apple's exclusive deal with AT&T meant it was tethered to its 2G Edge network, which is slower than the networks used by Verizon Wireless - jointly owned by Verizon Communications Inc. (VZ) and Vodafone Group PLC (VOD) - and Sprint Nextel Corp. (S).
AT&T's network runs on a technology that is more widely used around the world, which made it more of an attractive choice for Apple. But AT&T is also behind carriers overseas in building out a third-generation, or 3G, network. Its high- speed cellular network is currently available in more than 160 markets.
Noise over the slower network connection have some holding off on purchasing such a big-ticket item until the next, faster version launches. Kidron said in a note that he believes demand for the iPhone has slowed significantly over the past 10 days and that stores are stocked with the devices.
Possibly helping Apple is a "bounty" that AT&T pays it, according to the TheStreet.com. The report has AT&T paying between $150 and $200 per phone in addition to $9 a month per phone over the lifetime of the typical two-year contract.
AT&T declined to comment on the report. Apple wasn't immediately available to comment.
---------------------------------------------------------------------
This is the same pattern that hit the PS3 post launch (which, coincidentally, had the same $499/$599 launch price). Huge hype, huge sales for the first week, lots of reseller sales, and then sales took a sharp drop because the price point was simply too far off "mass market" levels.
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