This morning, Apple announced what, at first glance, looked like a disastrous number for launch-weekend iPhone 5 sales.The “worst-case” scenario that had been thrown around was 6 million, and estimates had run as high as 10-12 million.
The 5 million number Apple reported looked so bad that, had the consensus been that it was caused by weak demand for the iPhone 5, Apple’s stock would have crashed.
But Apple’s stock didn’t crash.
It just dipped 1%.
So that tells you that the market isn’t even remotely worried about demand for the iPhone 5.
Is the market right not to be worried?
Although demand for the iPhone 5 in some locations did not seem as intense as it has in the past, most of stores appear to have run out of iPhones pretty quickly. And, as Gene Munster and other analysts noted this morning (when explaining why a number that looked like a disaster might not be a disaster), many of the 2 million iPhones ordered via “pre-orders” will be recognised as sales this week or even in October, which is in the next fiscal quarter, and therefore may not have been included in that 5-million number. (This is because Apple does not count these iPhones as “sold” until they actually reach the end customer.) And then there is probably a trend toward more online ordering instead of store-based purchases as savvy customers try to avoid wasting time in the horrendous lines that accompany every iPhone launch.
And there’s another factor that is probably at work here, one that will spread sales of the iPhone 5 out over the next year instead of bunching them into a frenzied week or two:
Carrier contract expirations.
The US and other iPhone markets are now much more mature than they have been in prior iPhone launches, which means fewer of the new iPhone sales will go to “new users” (people who haven’t had smartphones) than they have in the past. A larger percentage of buyers, in other words, will be coming off contracts, which may affect the timing of when these buyers can upgrade to the latest phone.
Also, in an attempt to reduce the cost of frequent upgrades (and the subsidies associated with them), the carriers have been getting more stringent about when users can upgrade to new phones. As a result, most people who bought the iPhone 4S last year–and a lot of people bought the iPhone 4S–will likely be stuck with it for a while.
Although tech snoots have been hyperventilating over the iPhone 5, moreover, the truth is that it’s a relatively minor upgrade over the 4S, which itself was a relatively minor upgrade over the 4, and so on. Each incremental generation of smartphones does less to improve the overall user experience than the early upgrades did. So even folks who want an iPhone 5 and plan to get one may not feel compelled to deal with the hassles of the launch-week rush, preferring to wait until they know they can just walk into a store and get one.
Lastly, there’s the ongoing challenge of supply: Even with millions of Chinese workers assigned to the task, cranking out 5-10 million iPhones in a couple of months is a mind-bogglingly complex production challenge, and Apple may simply be bumping up against the limits of what is currently possible. Although Apple undoubtedly wanted to have a successful iPhone 5 launch, it would probably actually prefer that the sales be spread out over the next 6-12 months, rather than coming in one massive burst. So it may actually not be in Apple’s interest to produce much more launch-day supply.
Bottom line, there seem to be a lot of good reasons why the market concluded that there’s no iPhone demand problem, despite the ostensibly lousy launch-weekend sales. And the market’s probably right.
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