9 million iPhone sales is good, not great

Apple iPhone 5sFirst-weekend iPhone sales look good at first glance, and they're surely nothing to snicker at. But the numbers are not as big as they might seem. A year ago, iPhone 5 racked up 5 million sales, which compares to 9 million combined for successor 5s and the new 5c. Five is more than nine right?

But the math isn't so simple. The 9-million figure should stand on its own, and not -- as many blogs and news sites state today -- suggest sales surge. Don't be fooled by Apple marketing. What's good isn't great.

1. In the past, older iPhones filled the $99 price niche the 5c now takes. Apple can count more sales as new rather than lose in the assessment older, discounted models pulling up lower price points. iPhone 4s remains at $0, but at $99 there's new option, in five colors, that is counted as new.

2. T-Mobile sells iPhone in the United States. Apple didn't have the carrier for launch of iPhone 5. So in the handset's strongest market, all major carriers now sell the device.

3. New iPhones are available in more countries than last year's launch, and that includes China, the world's largest cell phone market. iPhone 5 debuted about 3 months after launch last year, racking up 2 million initial sales.

4. Apple doesn't break out 5s and 5c numbers, which is crucial to accurately assessing who's buying what, how margins spread and whether the pricing strategy makes sense.

5. Spot checks of launch-day lines indicate the majority of sales went to existing iPhone customers. That's good for Apple, as customer retention is an enviable goal every company wants to reach. But the real measure of success, particularly in a global market glutted with Androids, is customer churn. Apple can only resell to the same customers for so long, particularly with 2-year cellular contract commitments hanging over them.

6. iPhone 5c sales of any kind mean lower margins at launch, unless Apple makes them up somewhere else, such as sales of cases and other add-ons. Cost of initial manufacturing and distribution is greatest for new iPhones and decreases over time, as economies of scale and other factors kick in. When Apple moved iPhone 4s into the $99 price point last year, for example, the big margin hit was already over. iPhone 5c should initially generate smaller margins, comparatively, because of startup costs bringing the device to market. The point: More sales isn't necessarily more profit. It's too early to make that assessment.

As I predicted last week, Apple uses sleight-of-hands to give the impression demand is greater. By restricting preorders, Apple led more people to line up to buy iPhone 5s than the last two models. Rumors about supply shortages fed the demand beast and interest in being one of the lucky few -- another incentive to line up outside stores.

But don't be fooled by Apple. The company chose not to brag about iPhone 5c preorders, which reveals much more. Buzz about people standing outside retail stores or daily online reports about iPhone 5s availability is not measure of success. Nor is boasting about 9 million phones sold, when the year-ago comparison doesn't mesh and there is no breakout for the two new models.

I don't suggest 9 million is bad, just nowhere as good as the Apple marketing machine -- and all the company's online prognosticating lapdogs -- would have you believe.

Source: Betanews

Tags: Apple, iPhone, smartphones

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