Apple dealt 270,000 iPhones in debut; reports best quarter ever

Activation problems may have affected almost half of early iPhone buyers

Apple Inc. on Wednesday announced that it had sold and shipped 270,000 iPhones in the first two days of the device's debut weekend, nearly double the number its wireless partner claimed had been activated in that same stretch.

But during a late afternoon conference call on results for the third quarter -- which ended June 30, a day after the iPhone went on sale nationally -- Apple executives kept mum on most other iPhone news.

Peter Oppenheimer, chief financial officer, and Tim Cook, chief operating officer, repeated the same scripted answers to most questions from analysts who hoped to dig deeper into the iPhone's performance. Among the few nuggets that Oppenheimer and Cook provided: Some of the 270,000 weren't actually sold but were in AT&T Inc.'s inventory or on the way to the carrier's stores.

Neither offered a direct explanation of the disparity between Apple's and AT&T's numbers. Oppenheimer came closest when he acknowledged the activation delays that plagued many of the first buyers. "AT&T did have some activation problems," he said. "We would like to apologize to those customers who had a less than a perfect activation experience."

At the time, Apple spokespeople maintained that the delays affected only a small percentage of buyers. If, however, the 124,000-iPhone difference between the two figures is attributable to users not being able to activate, the problem may have hit up to 46% of those who purchased an iPhone on June 29 or June 30.

Apple's numbers were substantially lower than the often wildly inflated estimates of financial analysts. Weeks before the launch, Piper Jaffray & Co. analyst Gene Munster had pegged his forecast as 200,000 iPhones for the three-day weekend. Postlaunch, however, Munster bumped up his estimate to 500,000 units, based on exit polls at three Apple retail stores. Others had raised their estimates to as high as 700,000.

For their part, Oppenheimer and Cook seemed perfectly happy with the iPhone's stated sales. "AT&T said more iPhones were sold in the first weekend than they had sold in the first month of any other wireless device in their entire history," said Cook.

Oppenheimer stressed that iPhone sales are on track to meet CEO Steve Jobs' goal of 10 million by the end of 2008 and that the company is confident it would sell its one-millionth iPhone before the current quarter ends on Sept. 30. He also hammered on Apple's long-range mind-set. "We got off to a great start," he said. "But our focus is not on initial sales. It won't be done overnight. Our perspective is in years, not months."

Jobs has characterized the iPhone as the company's future third revenue stream, an addition to the successful Mac and iPod lines.

Oppenheimer also confirmed what had only been speculation -- that AT&T will share revenue with Apple as part of their deal. But that's as far as the CFO would go. "We will not recognize any payment from AT&T in the June quarter," he said, "but we will in the September quarter."

Several analysts have said in recent days that Apple will receive a piece of AT&T's calling plan pie. Munster, for example, had put the figure at between $3 and $11 per month per iPhone user, depending on whether the buyer had switched wireless carriers. Other analysts, such as Richard Gardner at Citigroup Inc., instead said they believe that Apple would receive a bounty, perhaps as much as $100 to $200, for each new subscriber who signs up with AT&T.

Apple would not offer details on the revenue sharing. During the conference call, when several analysts asked for more information about the deal, Oppenheimer declined to reply. "I'm not in a position at this time to go into it," he told one questioner. Specifics won't be made public until the next quarter's earnings are released in late October.

Oppenheimer also dodged a question about payments Apple might be receiving for placement of services on the iPhone's screen. Among those services are YouTube and Google Maps. "We don't discuss the terms of various agreements," said Oppenheimer.

Overall, Apple reported a record-setting quarter, with $5.41 billion in sales and $818 million in profits, the latter representing a surge of 73%. Mac sales were the highest ever, and at 1.7 million machines, up 33% over the same quarter last year. iPod sales, at 9.8 million units, were also up: 21% in volume and up 5% in revenue.

"Revenues were the highest in the history of Apple," said Oppenheimer.

Investors applauded. In after-hours trading, Apple shares climbed nearly $13 to $150.18 as of 8 p.m. EDT, a boost of 9.4%.

Copyright © 2007 IDG Communications, Inc.

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