Analysis: Apple sets iPhone sights on the long haul

Despite Wall Street’s intense focus on sales figures from the iPhone’s first two days on the market, Apple says that it’s focused on the long-term success of its mobile phone. And while some have expressed disappointment with initial activation figures—witness Tuesday’s broad sell-off of Apple stock —industry analysts suggested that, in the wake of Apple’s quarterly earnings, the company may be on its way to having another hit product on its hands.

Included in Apple’s announcement of its $818 million third-quarter profit Wednesday were the company’s first official pronouncements about iPhone sales. Apple said it sold 270,000 iPhones during the first 30 hours the mobile device was on the market. (The iPhone shipped on at 6 p.m. local time on June 29—one day before the end of Apple’s fiscal third quarter.)

The iPhone’s sales figures painted a much rosier outlook than numbers released a day earlier by Apple’s partner AT&T. The wireless service provider reported Tuesday that it had activated 146,000 iPhones during the phone’s first two days on the market, triggering a dramatic fall in Apple stock.

Why? Because the 146,000 fell well short of analysts’ projections.

A victim of the hype?

Earlier this month, in the wake of the iPhone’s opening weekend with press reports of huge lines at Apple and AT&T stores, analysts upped their opening weekend sales forecasts. Goldman Sachs analyst David Bailey originally predicted 350,000 in sales, but, after the device’s launch, raised his prediction to 700,000. Piper Jaffray’s Gene Munster likewise raised his initial estimate of 200,000 iPhones sold to 500,000.

As it turns out, the analysts were closer to reality with their initial predictions, made before a weekend of intense media hype over the iPhone’s release.

Apple’s sales figures released Wednesday, cover the same period as AT&T’s activation figures. In true Apple fashion, company CFO Peter Oppenheimer redefined that period: It wasn’t the last two days, but rather the “last 30 hours of the quarter.” And in that 30 hours, Apple says it sold 270,000 iPhones. Apple suggested that AT&T activation woes were at fault for most of the the 124,000 iPhones that were sold but not activated within that 30-hour period, although phones purchased for resale would also be included in that number.

JupiterResearch vice president and research director Michael Gartenberg, for one, sees Apple’s initial 30-hour sales figure as encouraging. “To sell 270,000 is staggering—the launch was clearly a success,” he said. “We are talking about a $600 phone. Nobody sells this many phones at that price. This is beyond anyone’s wildest expectations, unless your expectations were unreasonable. The real challenge is what happens now, and that’s all that matters.”

Ross Rubin, director of analysis at market-research firm NPD agreed, contrasting the iPhone’s launch of that with a Hollywood blockbuster. “This isn’t like a movie where the opening weekend is a strong predictor of overall success, and it’s not even like most retail products,” Rubin said. “The launch numbers are blunted because of the realities of most consumers considering a new phone only when their contracts are up.”

Apple’s long game

While analysts and the media try to get a grasp on the iPhone’s success (or lack of same) based on two days of sales figures, Apple’s executives obviously know how well the phone has sold in the ensuing three weeks. And that information hasn’t stopped them from making bold sales predictions.

“We hope to sell our one millionth iPhone by the end of this quarter, ending at the end of September,” Peter Oppenheimer, the company’s chief financial officer, told analysts during a Wednesday conference call. Oppenheimer pointed out that it took the iPod 21 months to reach that milestone. That means Apple has targeted a goal of selling 730,000 iPhones in the period between July 1 and September 30.

However, during that conference call Apple executives said they were focusing on the long haul with the iPhone.

“We’re very satisfied—the starting gun has been fired and we’re off to a great start,” said Apple COO Tim Cook. “However, our primary focus is not on initial sales. We’re focused on building a third great business for Apple, along with our Mac and iPod businesses. Our focus is years, not months—but the rewards are huge for Apple.”

And earlier in the call, Oppenheimer reiterated Apple’s commitment to its goal to sell 10 million iPhones in calendar year 2008. While the company’s goal to sell a million iPhones in the current quarter requires it to sell approximately 8,000 iPhones each day, the 2008 benchmark sets a much higher bar: more than 27,000 iPhones each day.

In addition to ramping up sales in the United States, Cook said that Apple will roll out iPhone in “a few major countries” in Europe later this year, “and then expanding throughout Europe in 2008.” Cook said the iPhone will also debut in Asian markets in 2008.

“We’re expanding step by step, year by year, and model by model, just as we have with prior product lines,” Cook said.

With a still-dominant iPod and a flourishing Mac product line with its highest sales totals ever, Apple is riding so high that it can afford to set its iPhone sights on long-term growth rather than short-term splashes.

“The company is on fire, period,” JupiterResearch’s Gartenberg said

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