Friday, September 27, 2013

Analysts, pundits try to downplay Apple's record iPhone launch weekend

Last weekend, Apple sold nine million new iPhones, blowing away analyst expectations and setting a launch weekend record in the process. In fact, the nine million tally nearly doubles Apple's previous iPhone launch record.

Suffice it to say, the iPhone 5s and 5c are bonafide hits and, once again, Apple is struggling to manufacture iPhones fast enough to meet demand. Considering that many pundits and analysts recently expressed supreme confidence that Apple had peaked and was prepped for a decline, that's not too shabby.

Now you would assume that even Apple's most vehement critics wouldn't be so bold as to turn a blind eye to nine million units sold in just three days, right?

And yet, as sure as the sun rises in the east, pundits from two mainstream publications attempted to turn Apple's overwhelmingly successful iPhone 5s and 5c launch into cause for concern.

First up, we have Sandy Cannold from ABC News whose article headline itself suffers from a dearth of logic; "Why Record iPhone Sales Might be Rotten for Apple", the headline reads.

There's a pun in there, I guess that's gotta count for something, right?

Cannold's article reads in part:

To me though, all this over-the-top fanfare and even the record-breaking first weekend of sales could actually be cause for concern...

I fully concede that Apple is going to make billions in profit from the sale of these new devices and the company is in no danger of becoming Blackberry or Nokia. But the reason I am voicing a bit of doubt is that it seems like Apple is now trying to squeeze every last bit of profit it can out of an aging, shall we call it, iStone.

Let's face it this new iPhone is just an upgrade, a refresh, dare I say a sequel. I am sure that true tech devotees will tell me how wrong I am, that this new device is smarter, faster, revolutionary, etc. But to me and millions like me it seems a lot more evolutionary. It looks a whole lot like the last iPhone and the one before that and the one before that too.

The "evolutionary but not revolutionary" theme is often trotted out by folks who fail to realize that revolution is often the amalgamation of many smaller evolutionary improvements.

As for Apple attempting to squeeze "every last bit of profit out of an aging" device, Cannold has it backwards. Apple is impressively able to increase its profits, year after year, by putting out devices that continuously set a new bar for excellence while making the majority of existing devices seem woefully outdated.

Cannold also writes that "this is no longer the Apple of Steve Jobs" insofar as Apple under Tim Cook hasn't upended an industry lately.

"I firmly believe that Steve Jobs," Cannold continues, "wouldn't have been satisfied to only pocket billions upon billions on tweaked products alone."

First, it might be instructive to look back at Apple's iPod years. On that note, Harry McCracken of TIME recently penned a piece highlighting "The Myth of Steve Jobs' Constant Breakthroughs."

Second, to call the iPhone 5s, sporting iOS 7 along with a number of hardware enhancements a slight tweak misses a larger point -- namely that the device's 64-bit processor and Touch ID software could be setting the stage for something larger.

Also downplaying Apple's impressive iPhone launch was Rolfe Winkler of The Wall Street Journal who wrote the following earlier this week.

Investors should be careful, though, not to extrapolate opening-weekend sales strength to future growth rates. For starters, Apple is including two "new" iPhone models in its opening-weekend sales figures for the first time. Last year, customers who opted for a new iPhone 4S, a model first released the prior year, weren't counted in the company's opening-weekend tally. This is despite the fact that it was sold for similar terms as this year's 5c, which is included.

This is true, but hardly cause for concern. The fact that Apple released two new iPhone models and was able to spur demand should be looked at as a positive. The iPhone 5c may be a repackaged iPhone 5, but it's effectively being touted and viewed as a new, fresh, and affordable alternative to the iPhone 5s.

As for the iPhone 4s not being included in last year's iPhone 5 launch numbers, that's a valid point, but lets try and guesstimate how many iPhones Apple might otherwise sell on any given weekend.

Now Apple doesn't release sales figures on a device-by-device basis, so let's start by taking look at sales figures from one of Apple's recent quarters, say, Apple's most recent holiday quarter covering a 13-week period ending on December 29, 2012.

During that quarter, Apple sold a record 47.8 million iPhones. Dividing that by 91 days (13 weeks) yields approximately 525,000 iPhones sold per day, or 1.57 million units over a three-day period. That being the case, even if we look at Apple's most successful iPhone quarter in history and subtract an average three day iPhone haul from the nine million total, we're still left with an impressive 7.43 million units. And that's with tightened supply, no less.

Returning back to the nine million unit figure, analyst Gene Munster of Piper Jaffray also tried to downplay the figure by assuming, with no evidence, that the figure included units shipped to stores but not yet sold to consumers. Munster's take on this may have to do with the fact that he anticipated weekend sales of 5-6 million units and his subsequent attempt to save face.

The thing is, Apple has historically only counted sales to end users. To that end, Fortune's Philip Elmer-DeWitt relays that Goldman Sach's Bill Shope pointed out that Apple this year "used the same sales recognition rules it has always used."

What's more, some have scoffed at the increase in iPhone sales by pointing out the obvious -- namely that the iPhone was available in more countries at launch than in previous years. The thing is, that was hardly a secret and analysts presumably took that into account when tabulating their iPhone launch sales estimates.

Elmer-DeWitt also relays an astute point from Matt Lew who writes that Apple's nine million figure doesn't take into account the number of iPhone devices ordered online and not yet delivered to consumers. And seeing as how iPhone shipment times were a few days at best, Apple's iPhone launch may in fact be higher than the nine million figure represents.

Elmer-DeWitt concludes with an astute point:

No other smartphone manufacturer's sales figures are subjected to this kind of scrutiny. Take, for example, Samsung. You won't see analysts questioning Samsung's unit sales numbers for the Galaxy S3 or S4. Nobody writes notes to clients asking what percentage of those sales were sell-in or sell-through. Samsung doesn't get this kind of scrutiny because it doesn't tell anybody -- not analysts, not investors, not the SEC -- how many smartphones it sells. And that's what's wrong with this picture.

Apple's iPhone sales aren't fluffed with "buy 1 get 1 free!" promotions, but are legit sales of two brand new devices that have received overwhelmingly positive reviews. The reality is that nine million iPhones is impressive no matter how you look at it.

Analysts, pundits try to downplay Apple's record iPhone launch weekend originally appeared on TUAW - The Unofficial Apple Weblog on Fri, 27 Sep 2013 15:00:00 EST. Please see our terms for use of feeds.

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