Tuesday, July 24, 2007

sigh: q2 07 iphone activations (updated)

In a New York Times article "AT&T Earnings Up, but iPhone Sales Disappoint" published today, Laurie Flynn reported:

AT&T said it signed up 146,000 iPhone customers, well below analyst estimates, which ran as high as 500,000 units. Shares of Apple fell more than 6 percent, closing at $134.89, down $8.81 on the day. AT&T’s shares were off less than 1 percent, closing at $39.68, a decline of 35 cents.

From briefing.com (via Digg):

[Today saw] the biggest one-day drubbing in Apple shares in seven years. AT&T said that only 146,000 iPhone subscribers were activated in Q2, which was viewed as a huge disappointment and caused collateral damage in Apple to the tune of a 6.1% sell-off in AAPL shares.

You don't have to rub your Magic 8-Ball too hard to come up with the following to explain low activation numbers:

1. The iPhone launched on June 29, 2007. 30 days hath September, April, June and November. . . telling me that consumers had at best 48 hours to purchase their phones and activate them in order to have those activations count in Q2. I'm guessing that the time between the actual launch (first possible activation) and the official close of the quarter (last possible completed activation, not counting those in the activation queue) was only about 30 hours. This translates to 4866 activations per hour / 81 per minutes / a little more than one per second on average. I'll also posit that the distribution of activations was more heavily weighted towards the back end of those 30 hours to take into consideration the time it took consumers to get home, have a delicious beverage, shower and start the activation process.

2. Stories of consumers experiencing severe delays activating their phones were widespread immediately following the launch. Half of the consumers in an Engadget.com poll reported activation delays, some as long as 60 hours.

3. Not all of those consumers who purchased phones in Q2 actually activated those phones in Q2.

4. Add in time to transfer a phone number, and your window of activation opportunity closes even tighter.

So why the hit on AAPL stock? Especially when Ms. Flynn reported that "a bright spot in the iPhone numbers during the quarter was that roughly 40 percent of the iPhone subscribers were new AT&T customers"?

Were analyst estimates grounded in practical reality? Or perhaps there are people who don't want a $600 phone on a slow, spotty 2G network with a 2-year required commitment to be successful? Or was this a reaction to numbers that didn't jibe with what common sense suggested?

UPDATE (7.25.07) - As expected, Apple reported actual iPhone sales which were more in-line with what they claimed analyst expectations to be, actually surpassing them.

Apple sold 270,000 iPhones in the product's first two days, the last two days of the quarter, beating most analysts' estimates of 200,000. The enthusiasm for Apple's first mobile phone gave Chief Executive Officer Steve Jobs an early victory in his plan to win a share of the market, which is almost four times bigger than the personal-computer industry. (source: Bloomberg)

Let's do a little math, shall we: Of the 270,000 iPhones sold in the first two days, only 146,000 were activated, or 54%.

It will be difficult to tell how many of those should have been activated in the first two days, but could not be due to system errors.

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