There are two schools of thought about Apple right now. One that says that the incredible result of it shipping 6.9 million iPhones will mean that some of these phones will clog the channel, and as conservatism and the recession hit, it cannot produce another quarter like the last. The opposing view is that the last quarter was produced without a holiday season, with exclusive deals, and only a retail reach of half the world, and the next quarter has two holidays (US Thanksgiving and Christmas), so Apple will knock the leather off the ball once again.
The people that held the first view before last week’s results must already feel a little put out because Apple did so well, but we’ve spoken to people that are convinced that June to September was ‘pre-recession’ and that October to December are right in the eye of the storm. It depends which storm you are thinking of.
AT&T sold 2.4 million iPhones during the last quarter which means that the rest of the world took more iPhones than the US. So the idea that a recession which has yet to really bite outside of the US, can stop iPhone sales in their tracks, looks a little off beam to us.
It’s not that we don’t believe that the recession will bite hard across Europe and Asia (Hungary has declared itself bankrupt already, but has already been granted a €20 billion bail out by the International Monetary Fund), but it won’t bite the man in the street until after Christmas, and after that it is an economist’s job to tell us how long it will last and how deep it can go, but right now, outside the US it feels unreal, so people are still spending.
Inside the US credit card companies have tightened their controls and applications for credit cards have fallen dramatically, as individuals take a long hard look at their own finances and try to prepare for the coming months. This has yet to happen elsewhere.
But Apple, with 25 billion in cash has already done its preparations for the recession. If we assume that some of the shipments that Apple has made, are merely to fill the channels of both AT&T and all of its new cellco partners around the world, then perhaps we have to try to put a number on that in order to be able to predict the next quarter. Looking at the UK base Carphone Warehouse that has exclusive on iPhone online sales (apart from Apple and O2 the carrier partner itself), we can see that it already has some models out of stock. So it’s tough to attribute too much to inventory
Our financial US partner JRPG suggests that AT&T and Apple itself and the rest of the global channel is holding around 2 million iPhones. That’s reasonable given that Apple sells its phones through 200 retail stores and they all need physical stock. Outside the US many will be sold online, where stock is not such an issue, and one or two central warehouses will do the trick. But the idea that the channel has all that it can take is unlikely. Apple only just added a whole raft of countries to the list that will be getting the iPhone, some of which will only be getting their first shipments now.
In July it said it would ship to 22 countries, and this quarter it has upped the number to 50. Now many of these are smaller countries with fairly insignificant mobile populations, but when you hear that there are already 800,000 hacked iPhones in China, you realize that the total mobile population of the countries it has been announced for are only a small indicator of the need for this device ‘ the grey import market also has a role, an additional role, to play.
The 22 countries that announced the iPhone in July had a total mobile population of 886 million mobile phone users. The new countries including Argentina, Brazil, Greece, Hungary, India, the Philippines, Poland, Russia, South Africa and Turkey and they all have a combined mobile population of another 848 million. They also have newer 3G networks, with the operators hungrier for reasons for people to upgrade. First off all of these countries will have their own retail channels and these will have to take inventory, so even if the other countries are stuffed full of iPhones and want to lower their inventory to reduce risk, this will be more than reversed out by the new inventory build in the retail chain in the other half of the world. That suggests that sell through outside of the US is likely to double. Even if these markets have fewer middle classes, we have noticed in the past that symbols which denote wealth and spending power such as hot new phones, are even more important. China ships a higher percentage of top end phones for instance (though India doesn’t).
So if only 2.5 million actually shipped last quarter to customers outside the US then the chances are that even without Christmas coming (it is not celebrated in all of these countries), this would still double as advertising begins to bite in each of these countries. So make that 5 million, plus another million for stacking the retail channels.
Under those conditions, even if AT&T only sells half the number as the recession bites harder there, the last quarter of the year will still outstrip the September quarter with well over 7 million iPhones. A more reasonable number would be closer to 8 million. It is perhaps the January March quarter when iPhone sales will collapse, falling back to not much more than half of this inflated number per quarter.
And if all that happens, and given the huge profit Apple has been making on the device, then it will have ready another surprise come the late January reporting season, even if iPods go into an anticipated decline. Last quarter iPod shipments increased 8% and iPod revenue rose 3% and yet again Macs sold a record number which they may well do once again in come January.