Analysis – The iPhone 3G launch frenzy is over and if you were among those to leave Apple or AT&T stores empty handed, then there is a good chance you will get your phone in a much quieter “direct-fulfillment” environment this week. But the massive hype and demand left us wondering how many iPhones were sold to enable some conclusions whether Apple supplied reasonably enough units or if this was yet another case (remember the PS3 launch?) of deliberately undersupplying the launch market. Let’s have a closer look.   

Being a financial analyst can be a tough job, especially if you had to cover the iPhone 3G launch. In terms of sales estimates, you are dealing with an overly secretive company anyway and in this specific case, a usually perfectly executing machine failed on multiple fronts, which could mean that you have to pull at least some estimates out of your nose. When analysts issued their iPhone 3G sales estimates last Friday, no-one factored in the activation issues that spoiled the party. And it appears that many analysts may have largely underestimated Apple's ability to resolve the nightmare and get back on its feet quickly, making the equation even more complicated.

According to Yankee Group, Apple’s hiccup may have been just that and the research firm now thinks that the iPhone 3G may have been the largest consumer electronics product launch in history, taking over the title from the original iPhone.

Analysts now say that official sales results "fall in line with expectations", but Friday estimates varied greatly, from 425,000 (Piper Jaffray) on the low-end to one million (RBC Capital Market) and all the way up to three million on the high-end. Before we crunch the numbers, remember what Apple constitutes as a sale: Apple Store sales are recorded when the sale takes place at the store register. Sales to Apple's U.S. and overseas carriers are considered wholesale and are recorded when an iPhone leaves the docks in Asia.

A reduced price and an expanded international distribution model are now helping Apple to boost sales, but a lack of online sales and activation issues have cut into the handset's true potential. Activation issues affected sales the most since the sales time was increased beyond 15 minutes (sales at Apple stores last year took about 1 minute each).

"Making history is never easy or smooth," said Yankee Group analyst Carl Howe. "Apple's competitors should be happy about the problems they had. Imagine how many iPhone 3Gs Apple would have sold if the launch had been problem-free," said Howe.

It is interesting to note that analysts don't see widespread iTunes activation server issues that led to bricked handsets as a sign of a sloppy launch preparation on Apple's part, but rather as an indication of the overwhelming demand.


iPhone 3G sales turn analysts upside down

Some analysts underestimated Apple's ability to get over the activation issues and Piper Jaffray's Gene Munster is one of them. The analyst originally projected only 425,000 units sold from Friday morning to Sunday evening, estimating it would take Apple 17 days to pass the one million mark.

"We underestimated the number of phones sold per hour throughout the weekend and Apple’s recovery from activation issues. While we believe Friday’s 24 phones per hour is probably a close guess for Friday, the number likely increased significantly on Saturday and Sunday, well above our previous estimate of 28 phones per hour," the analyst said in a revised statement sent to clients yesterday.

"The summary is that demand is good, execution was average," Munster told Bloomberg. He says iPhone 3G sales are 40% higher than last year, citing "international availability in 21 countries and 60% lower entry-level price point" as key drivers, translating into 4.08 million iPhones sold this quarter.

For RBC Capital Market’s Mike Abramsky, the launch weekend sales turned in exactly the one million units he predicted on Friday, citing pent-up demand, expanded distribution and lower price points. Abramsky expects 5.1 million units for the fourth quarter and 6.5 million for the first quarter of 2009. If he is right, Apple has a shot at overtaking Research in Motion (RIM) as the world’s second largest smartphone company. RIM is currently selling about four million smartphones per quarter.

Analyst projections aside, the demand for the iPhone 3G appears strong across the majority of the 21 launch countries. As indicated by the iPhone availability tool, Apple has run out of iPhones at 95 of its brick-and-mortar stores in the UK. Some AT&T stores are also sold out, but the carrier still signed up customers who will receive the handset with the next iPhone shipment. Unexpected shortages after just three days may indicate that Apple underestimated the demand (RBC's Abramsky estimated the initial iPhone 3G production at 1.5 million units). European markets that showed sluggish demand last year are now reporting overwhelming iPhone demand and strong sales.

Read on the next page: Overseas markets taking off and Apple's iPhone revenue