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Record-Setting iPhone Sales Limited by Supply Pains

By Richard Adhikari MacNewsWorld ECT News Network
Jun 28, 2010 11:03 AM PT

Apple said Monday that it sold more than 1.7 million iPhone 4s in the three days following the device's launch on June 24.

Record-Setting iPhone Sales Limited by Supply Pains

"This is the most successful product launch in Apple's history," Apple Chairman and CEO Steve Jobs said.

Nonetheless, he also apologized to customers who were turned away when various retail outlets and online channels ran out of iPhones to sell.

The Big iPhone Candy Mountain

Although previous iPhone models have broken the 1-million mark three days after launch, the iPhone 4 has outpaced them at 1.7 million units sold. Initial demand for the device was overwhelming from the first day the devices became available for presale earlier this month. Buyers crashed both Apple's and AT&T's websites and brought down the latter's ordering system.

Over the weekend, television broadcasts showed long lines of people waiting to get their hands on the iPhone 4 outside Apple stores in both the United States and Japan.

"Despite those long lines, many people overseas went away disappointed," Brian Marshall, an analyst at Gleacher, told MacNewsWorld.

The Emptiness Within

Sales of the iPhone 4 likely could have been higher if Apple could have obtained more supplies. However, LG Display, which makes the displays for the iPhone 4, is reportedly having problems with its production line, and this halved the shipment of approximately four million devices Apple had counted on.

"Apple could easily have sold more units," Maribel Lopez, founder and principal analyst at Lopez Research, told MacNewsWorld. "The preorders were a strong indication of that. In fact, they should consider doing preorders earlier to gauge demand," Lopez said.

"I think Apple could have sold 3 to 4 million iPhones if they had supplies available," Gleacher's Marshall said.

Unlike its predecessors, which launched first in the United States well before being made available overseas, the iPhone 4 was launched simultaneously in the U.S. as well as in France, Germany, Japan and the United Kingdom on June 24. However, most of the iPhone 4 sales were in the U.S., Marshall pointed out.

"I think the international portion of those sales was pretty small, but overseas sales will pick up in the future," Marshall explained.

Selling to the Faithful

Although sales of the iPhone 4 in the first three days broke Apple's records, nearly 80 percent of the people who bought the iPhone 4 on the first day were repeat customers looking to upgrade from an older iPhone, according to Piper Jaffray.

That trend is likely to continue.

"Upgrades will make up a large percentage of U.S. sales, as a large number of buyers of the iPhone 3G in 2008 are eligible for the full AT&T subsidy and have delayed upgrading until the next iPhone hardware refresh," Chris Hazelton, a research director at the 451 Group, pointed out.

"There would certainly be a lot of upgrades because the iPhone has been available in the U.S. for three years now and the handset replacement cycle is two years," Gleacher's Marshall said.

Prior to the phone's release, AT&T, which is the iPhone's sole carrier here in the U.S., announced that iPhone users who would have been deemed eligible for an upgrade later in 2010 would be offered an iPhone 4 at the standard US$199/$299 price point immediately upon launch.

Money on the Table?

It looks as if Apple has left quite a bit of money on the table, what with the substantial proportion of early sales going to upgrades and its inability to meet demand with adequate supply. However, the situation isn't so bad, at least for Apple.

Recall that AT&T made the free upgrade offer, so it's the one that's really hurt by the large proportion of upgrades.

As for the supply shortage, it's likely that Apple had already factored this into its calculations.

"This isn't the first time Apple has brought a new device to the market, so they understand well in advance the supply and demand of their new launches" Gleacher's Marshall noted. "They are always constrained at the start."

LG's production line problems are common to all factories turning out a new product because it takes a while for the manufacturer to iron out the early kinks, Marshall pointed out. He expects production to be able to meet demand within six months or so.

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