Friday, April 18, 2008

iPhone sellers braced for hit on unsold handsets

Mobile operators with exclusive contracts to sell Apple's iPhone are bracing themselves for significant losses on unsold stock as they clear the shelves to make way for a new, faster version expected this summer.

O2, which sells the phone in the UK, and T-Mobile, the German distributor, are said to have significantly overestimated the number of first version iPhones that would sell in Europe.

Kathryn Huberty, an analyst at Morgan Stanley specialising in Apple, said the losses on early model iPhones would be "significant" even though they may recoup some of this in monthly revenue from customers who bought the cheaper devices.

Ms Huberty said European mobile executives seemed to have become over-excited by the hype surrounding the iPhone at the time of its US release on the AT&T network last June.

They had since had to take steps to shift stock on which they would now make a loss in order to clear the shelves for the new 3G iPhone, which is expected to be in greater demand in Europe than in the US because of the more advanced phone networks.

On Tuesday O2 announced it was cutting the price of the iPhone by more than a third — from £269 to £169 — and two weeks ago T-Mobile made an even more drastic cut, from €399 (£319) to €99.

An O2 spokeswoman said the price cut was "not a reactive move but part of a well thought out strategy of maximising the success of the iPhone in the UK."

T-Mobile was not immediately available for comment.

With Orange, which won the contract in France, the three sold 330,000 units to the end of December, but industry sources say that European sales of the iPhone were forecast to be between 500,000 and 600,000.

Orange has yet to cut the price.

O2 said in December that its sales of 160,000 iPhones were "broadly" hitting the target of selling "a couple of hundred thousand" by mid-January.

According to a report by another mobile analyst, CCS Insight, last week, sales of iPhones had "slowed significantly" in all the European markets where it is available" ahead of the release of the 3G version, and retailers faced "challenges" in clearing stock from existing channels.

Apple is expected to launch its new phone in June.

Times Online understands that Apple has placed an order with its Asian suppliers to produce 200,000 of the new 3G iPhones by the end of May, rising to 2 million - 500,000 per week - in June.

With a four week lead time between production and placement, that would leave Mr Jobs free to launch the device during an annual developers conference at which he usually speaks.

Industry sources told Times Online that the device will have a "radically different" appearance to the current device, which has a 4.5 inch screen and slick, aluminium backing. Among the possibilities are flip version, which would enable the screen to be larger, and a sliding model with a regular qwerty keyboard - as opposed to a touchscreen one.

"I think ultimately you going to see multiple versions," one Asia-based analyst, said. "One for customers who want it principally as a music and video device, which will be similar to the existing model, one for people who want to communicate - with the keyboard, and one for people who want it as a substitute for their laptop - that will let them browse the internet on a larger screen."

The new phone may also usher in a change in the way Apple strikes distrtibution deals.

Ms Huberty suggested that Apple will eventually break with its policy of favouring one network to be the exclusive distributor of the iPhone in a given territory — possibly as early as next year.

She said that many had suggested that Apple's exclusive contracts with the carriers would last for five years, whereas it was more likely they were for two years. That meant that from June next year in the US — October next year in the UK — Apple would be selling the iPhone to other carriers.

This fitted with the company's strategy of moving its reliance on payments from carriers to include charging for downloads of software applications and taking a cut of internet advertising.

Ms Huberty said: "Steve Jobs's (Apple's chief executive) end game is not to limit distribution and maximise carrier payments. It's to bring the best mobile platform to the market and then sell as many units as possible. There's lots of ways Apple can drive revenue from the iPhone that aren't part of the current model."


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