Apple (AAPL) finally commented about the iPhone shortage, all but confirming that it is a problem, not a new product introduction. Saul Hansell of the New York Times:
Steve Dowling from Apple called… “We are working to replenish iPhone supplies as quickly as we can,” he said to me reading the same statement he offered to others. “Our stores continue to receive shipments almost every day.”
Meanwhile, an extremely articulate commenter calling him- or herself “Tantrum” argued at the end of Saul’s piece that the reason for the shortage is that Apple simply can’t keep pace with the extraordinary demand for the iPhone overseas, especially in emerging markets. In Tantrum’s opinion, international buyers and a grey market developed by “organised exporters” are scarfing up all extra iPhones put on sale in the US.
We have reprinted some of Tantrum’s manifesto below. We encourage you to read the rest at the NYT. (And, Tantrum, if you’re out there, we would love to hear from you.)
Demand for iPhones outside the United States, particularly in emerging markets, is out of control and has reached the point where it has started to impact Apple’s normalized supply chain projections. It’s OK to have a delta of, say, 100,000 units or so per year between actual and forecast. International demand is driving that delta upwards of 1 million. That’s a whole different ball game for component sourcing, quality control and production ramp-up and some things are starting to come unstuck, even for a finely managed company like Apple.
What’s driving this?
1. Free, out-of the box -ready, GUI-based network unlock solutions like Ziphone and iLiberty. Confidence in these unlock systems has grown significantly over time as technical expertise required to use them has fallen.
2. A large, very organised procurement mechanism for iPhones, particularly into Russia, Eastern Europe, India and China. There are people who go from store to store buying iPhones and aggregating them for export to “resellers” overseas.
3. Proliferation of Wi-Fi penetration and the recognition that in GSM countries, iPhone works simply and well enough. Wi-Fi hotspot usage is growing significantly around the world and the iPhone’s superior web browser is taking full advantage to maximise customer experience. It’s the right product at the right time for the macro-trend.
4. The iPhone is relatively cheap to emerging market customers used to paying $500 for a BlackBerry and a cheap US Dollar makes it an even better deal. For example in Russia, at $499, a16GB iPhone translates to around 12,000 Rubles. An 8GB Nokia N95 costs $815 or 20,000 Rubles. The value-for-money perception with iPhone is absolutely huge.
5. Zero or minimal compatibility issues on GSM Networks. I have used my iPhone with SIM cards from 32 different networks in Europe and developing countries. It works seamlessly. The iPhone is a quad-band GSM phone, meaning that it supports all four major GSM frequency bands, 850 and 1900 MHz bands which are used in the Americas, and 900 / 1800 MHz bands used in most other parts of the world, making it compatible with all major GSM networks worldwide. 2 billion people around the world use GSM phones.
To give you an idea of international demand; There are Nigerians shipping more than 500 phones a week from New York to Lagos and Nigeria is a third world country…. If you define a potential user as someone who can afford (or is used to) paying twice as much for an iPhone and double what an AT&T subscriber pays per month, there are at least 7 million potential iPhone users in Nigeria, 9 Million in South Africa, 80 Million in India, 25 Million in Russia, 25 Million in Brazil, 8 Million in Indonesia and 100 Million in China. Not all of them will be users but just 5% of this number is way more than 10 million. Considering mobile phones are some of the most universally adopted products on the planet, a good GSM phone reaches Iran and Iraq much faster than people on Wall Street can ever imagine. I predict iPhones will be available to elites in Cuba (which has both GSM and TDMA) within the next 30 days.
From research I’m conducting. we have conservative numbers of grey market as follows:
Russia 2000-4000 phones/week
China 4000 -6000 phones/ week
Demand from Western Europe is substantially slower but still significant, averaging anything from 2000 -3000 units/week from New York and other big cities with international airports. Now, not all the phones shipped from New York are bought in NYC but the export pattern is clear and very strong. I have completely ignored the cash-flush Middle East where Dubai has always been a world-leading port in grey market clearing and forwarding for consumer electronics.
Conservatively speaking, something is sucking 15,000-20,000 iPhones/week out of the United States. If this phenomenon is coinciding with steadily growing adoption among US customers, suddenly the slack Apple had is drying up.
Many of the millions of visitors coming to the United States every month are going back with a packed iPhone in their luggage. It’s one of the things people are expected to buy when they come.
Foreign nationals are not very likely to buy iPhones at an AT&T store because the requirements are inconsistent (some stores requiring SSNs, existing phone numbers and/ or activation), queues are long (non-starter for people with a limited window to get back to the airport), lack of other Apple products (iPods etc) and accessories and simply, AT&T stores are not landmarks.
Finally, the reason why used iPhones will begin to show up on eBay and other consumer-to-consumer sites in Western Europe is because individuals who speculatively buy an iPhone to resell are up against “organised unofficial” suppliers and 3G is a big deal there. In emerging markets, you’re much more likely to buy a phone from an “expert hacker supplier” if you worry about fixes and other things. And yes, the parallel market is showing budding signs of getting sophisticated at providing some of the support Apple won’t provide….
Bottom line: Apple has produced a product that is promising but short of the mark in 3G Western Europe, reasonably good for the US but a smash hit in emerging markets.
— Posted by Tantrum
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