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Zach Bass (a.k.a Ernie Varitimos) is Chief Bloviator of Investor in the Wilderness. He has 30 years experience as a Tech Maven, Investor and Consultant. Zach has been using Macs since their introduction in 1984, and investing in the markets just as long. His mission is to help guide all level of investors through the Apple Ecosphere and make sense of the markets. Zach's take on Apple, the markets, and life pursuits, will keep your mind tuned.

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Can Apple Double iPhone Sales Goal in 2008?

June 3rd, 2008 • Related • Filed Under
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On April 23rd at Apples Q2 Earnings Conference they beat the street and provided their usual conservative guidance. They reported selling 1.7 million iPhones since the beginning of the year, putting them somewhat short of the rate they needed to meet their 10 million iPhones goal by the end of 2008. No one gave it a second thought, even though the year was 25 percent over, they had only achieved 18 percent of their goal. Again, no one was worried because we all “know” that Apple will be introducing the 3G iPhone, new OS 2.0, the SDK, and the App Store. But, I’ll guarantee you that everyone was doing the math, and scratching their heads. It just didn’t add up.

Then the barrage of carrier deals started rolling in just weeks before the WWDC. Apple went from 4 carriers to nearly 70, at least at the time of this writing. They have carriers lined up on every continent, covering pretty much the industrialized world, with a few exceptions. Some of these deals apparently break the one carrier-one country model that Apple had seemed to standardize on. But even this should not have been a surprise, when back in February Tim Cook declared that Apple was not tied to a single business model.

Now things start getting a little clearer. With the new carrier deals, Apple now has a potential market of nearly 700 million cell phone customers. And with the iPhone currently enjoying a 3 percent general cellphone market penetration rate, that equates to nearly 21 million iPhones! So, there you have it, more than double Apple’s initial projection.

My take on this is, that a market penetration of 3 percent seems way too conservative to me. Why would we assume that Apple will not increase their market? Sure I understand that not everyone wants a smart phone, especially at a premium price and the extra cost of digital service. Fine, so we leave the smart phone market out of this equation. But what if Apple decides to introduce an iPhone with fewer features, an iPhone Light? And allows carriers to subsidize it, so that it’s basically free with a service contract? Then I can see that market penetration dramatically increasing. My guess would be 7 to 10 percent. Let’s split the difference. That would figure out to be about 60 million iPhones! Whoa!

More on this topic (What's this?)
Sorry RIMM, Apple Killed You (The Wild Investor, 12/22/08)
The End of Steve Jobs ™ (The Curious Investor, 12/18/08)
What’s going on at Apple? (Part I) (The Curious Investor, 12/17/08)
Apple’s 3G iPhone Will Be Even More Successful (The Razor's Edge, 7/9/08)
Read more on IPhone, Apple at Wikinvest

Viewing 7 Comments

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    if gas goes up any more video conferencing with your peeps will be a bargain if you figure the phone saves you 5 tanks of gas a month
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    You're right, I fully agree. More so because Apple will surely add China and Russia to the list. Contrary to what most say, Japan is not that interesting for Apple but hey, what the heck, add them in too. That gives a total subscriber market of 1.1 billion. If you factor that 20% of it are smartphones then you get 220 million. And I figure that Steve Jobs won't be happy until he reaches 50% of the smartphone market so I really see a potential for some 100 million in the short term.

    All in all I wouldn't be surprised at all to see sales of between 50 to 100 million iPhones in one year's time. One reason to be really relaxed about this is that the iPhone is not a phone but a handheld computer with phone functionality and that means that many will buy it because of that computing capability. Think about it, the EeePC costs $300, the iPhone can cost a lot less (subsidized) and be a lot more functional and that's not counting for elegance etc. The EeePC has been in the top tier of Christmas wish lists so they say... that might change now.

    So this is the vision. I am guessing that Steve Jobs this time gave up on any shared revenue deals etc and imposed only one condition to carriers to get the iPhone deal: heavy promotion and subsidizing. There's talk the the iPhone will be available for €99 in Europe by July. That'll be a steal for such a computing device.

    And yes, you're right when you mention a kind of "ladies model", fewer functions and smaller that will be easier to price lower too.

    Steve Jobs needs to quickly achieve a powerful position in this market and 100 million iPhones in one year isn't that crazy for a company that already sells more than 10 million iPods per month! The iPhone will easily out rank the iPod in terms of sales because, while the iPod is a pleasure gadget and appeals to a younger demographic range, the iPhone is a serious work tool and it appeals equally to all demographics!

    It's possible that Steve Jobs announces an oversized iPhone/mini-tablet. And come September, it's possible that Apple launches a full Mac OS X tablet. It's been rumored, at least.

    Because what Steve Jobs will be announcing next week is the start of a new handheld computing revolution, as important as the first Macintosh/PC revolution. Maybe even more important because there are more pockets than desktops!

    Now you're an investor. Let's see this from that angle. The iPhone is a viral marketing tool, it's contagious, it spreads infectiously and exponentially like a virus. Infected people start to look at the rest of Apple's ecosystem and become interested in Macs. Now the iPhone will now be sold in countries where they sell but a few Macintosh if at all. Don't you think there will be a sales explosion for Apple products all across the world? Not just iPhones. Let's just say that there's a high probability of that happening.

    The iPhone will be a tremendous propaganda machine. The all competitive cellphone network carriers will do the marketing for Apple for free! However, Apple will also do their mkt stunts like opening the Apple Store in uptown Beijing in August right on the Olympic Games.

    So I see this: the iPhone steals sales from iPods but it grows enormously to match Mac sales revenue figures. Added to this Mac sales also increase big time. [Remember that MSFT is helping a lot with their failing Vista and people getting tired of that hell compared to the paradise they experience when using a Mac.] All in all, Apple Inc. doubles. AAPL also surely double because the stock market deals with forward looking potential.

    This is what the WWDC is about.
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    All your numbers are way off. 2007 global mobile phone sales were about 1.1 billion. Apple sold about 5.1 million iphones from launch through March 31 and perhaps another 1 to 1.5 million to date. So based on the 2007 figure, total mkt penetration is only 0.5%, not close to 3%. A 3% run rate on 2008 total mkt figures would be roughly 36 million phones (based on 1.2B mobiles sold, or roughly 10% more than 2007) or more than triple their estimate. I don't think anyone, no matter how iPhonatical one is, believes they'll sell 36 million in 2008. They might do it in 2009, but even that seems like a stretch. Regardless, factual information would be appreciated.

    In response to Zoltar, you have to smoking some great grass to come up with 50 - 100 million iphones in 2009. Please send some of that stuff my way! As an investor I sure hope so, but the thing you completely miss is that an iPod is far less of an investment than the iPhone, so sales comparisons are ridiculous. If you had to buy a two year data plan for each iPod, you think sales would be so high? No way. Again the addressable mkt for iPhone is actually smaller than everyone believes until they bring that price down. It will be extremely hard given Apple doesn't like to cheapen its brand and the very advanced bill of materials (accelerometer, large touch screen, 3G chip, Edge/GPRS chip, Wifi chip, etc).
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    You're so skeptical. You even seem angry!

    You can't calculate market penetration of a product that is sold in 4 markets taking into account global mobile sales! And what does it matter that (someone has estimated that) 1.2 billion mobile phones were sold globally when many people have more than one, each from different networks?

    The 1.1 billion is the sum of total subscriber base collected until now adding from all the networks that signed up with Apple but it still doesn't express the market potential for the iPhone because there are many people who change network for the iPhone and there are also many people who never bought a smartphone that will now buy an iPhone without even think they're buying one, much less of a computer for that matter.

    And although Apple won't ever be ready to forgo their $200/iPhone profit, I just bet that they have let all those networks sign up with them on the condition that they heavily subsidize and promote the device. Which will stand to their benefit too!

    By the way, since the iPhones are so expensive, how the heck do you think that Microsoft sells 26 million windows mobile OS when WM smartphones sell for upwards of €300, usually around €500?!

    We'll see who's right next week. It's not long now.
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    Penetration is calculated in function of a contained known population. For instance, if you know a country has got 10 million people and the networks show they have 12 million cellphones active, then there's 120% penetration. It means there are many people who have more than one cellphone. Of course, you've got to realize that many babies don't have any so there's your truth. But it's a ballpark figure for orientation.

    So to calculate iPhone penetration you must first define "penetration where?". If it is penetration in the US, then you should first realize that only one network has got the device. Too bad you say and you're right. So there would definitely two penetration numbers to assess: % for AT&T and % for US total subscriber base. Why not for the total population? You could calculate that too but it's worthless because these figures are only interesting in terms of competitive comparison, i.e. iPhone vs. BBerry vs. WM etc. For a country it only makes sense the total number of cellphones. Although one could calculate the penetration of smartphones...
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    The 3% market penetration is for the 4 markets that Apple is currently in. I was projecting that 3% market share to the larger pie they'll have when they enter the new markets by years end. The world-wide cell-phone market may be 1.1 billion, but Apple won't be in every market. The 700 million is for the markets they will be in judging by the carriers they have signed to date.
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    There are so many reasons for the number to be bigger:
    - people who jump from other networks for the iPhone;
    - developing countries where growth is explosive AND people consider their cellphone as important as Americans consider their cars;
    - explosive growth of cellphone users moving to the smartphone platform
    - ...
 

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