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iPhone Channel Inventory
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After all the big numbers have set in, I like to review the conference call for interesting tidbits. One such tidbit was in the answer to “our pal” Toni’s question about channel inventory.
Despite having to fill inventory for all those WalMart stores, and add a slew of new countries (albeit smaller ones), channel inventory actually dropped from 2 million to 1.75 million.
What can explain this draw down? Given the sales numbers I think we can say that buyers were not sucking phones out of inventory faster than they could be replenished. Does it relate to a target ratio to real sales and is worldwide demand just less than was expected? Was it calibrated to be like here in North American and it just didn’t pan out? Is this just natural given lifecycle factors in that it’s after the initial spike of product introduction? Are we already making room for a new version?
Interested to hear your thoughts here. Will this trend continue or reverse itself in the present quarter?
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DawnTreader
- [ Ignore ]
At the end of December it was too early to begin channel inventory changes in anticipation of new models IMHO.
Second, channel fill to new territories will offset channel inventory reductions in countries where the iPhone was already present.
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After all the big numbers have set in, I like to review the conference call for interesting tidbits. One such tidbit was in the answer to “our pal” Toni’s question about channel inventory.
Despite having to fill inventory for all those WalMart stores, and add a slew of new countries (albeit smaller ones), channel inventory actually dropped from 2 million to 1.75 million.
What can explain this draw down? Given the sales numbers I think we can say that buyers were not sucking phones out of inventory faster than they could be replenished. Does it relate to a target ratio to real sales and is worldwide demand just less than was expected? Was it calibrated to be like here in North American and it just didn’t pan out? Is this just natural given lifecycle factors in that it’s after the initial spike of product introduction? Are we already making room for a new version?
Interested to hear your thoughts here. Will this trend continue or reverse itself in the present quarter?
My gut tells me the subsidized sales world-wide are according to plan, but in the unsubsidized markets sales are slower then anticipated the buzz takes time to grow.
Recent article on Russian sales
During first three months of official iPhone sales in Russia there were sold no more than 120 - 180 thousand devices. According to some analytics, during 4Q there were shipped even less - only 89,000 iPhone 3G devices. Taking into account that the three largest operators in Russia obliged to buy 3.5 mln iPhones from Apple in the next three years, 1.5 mln of the phones go to VimpelCom (to be purchased in two years) and 1 mln goes to MTS (to be purchased in three years), reported anonymous operators? managers. According to MegaFon?s report for 3Q08, the operator is to buy 1 mln iPhones from Apple during two-years timeframe. Therefore, to avoid losses since the fourth quarter 2008 VimpelCom must sell 187,500 iPhones each quarter, MTS ? 83,300 iPhones, and MegaFon ? 125,000.
If you look at the number of sales outside the US, I would have expect a greater percentage of world wide sales, but it takes time to introduce a new product. Remember many of these countries only had access to the Iphone via the grey/black market. While folks in India & Russia are non-contract, if I had just spent a large portion of my monthly salary on a N95, then I doubt I would be in the market for an Iphone. The replacement cycle on a phone is about 18 months so their are plenty of eventual Iphone users who are just learning about the product.
As far as the inventory dropping despite adding channels, I look at that as a more seasonal effect. Sales of cell phones normally drop 10-15% from the Christmas quarter and add in a global recession and the inventory seems about right for the expected sales and channel inventory of 4-6 weeks.
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Great notes here re: Russia, and we’ve read how India is basically a non-starter too. I’ll say it, “Ward, I’m worried about the iPhone”. I’d like to agree it just takes time to introduce a new product in these international locales, but I really fear it’s more than that. I’m thinking that we really need a new approach and/or new phone for these markets. Gene Munster’s question and Tim’s answer really point out that in many of these markets (non-subsidized) the iPhone is just priced way too high. It CAN’T sell, and time won’t help that. Optimistically, Tim did say adjustments will be in the future to play in a stronger way, so at least it is recognized. I just think we need to understand it’s not just a simple issue. The stats from RIMMs earning call said that 72% of the world’s mobile phone market was in the pre-paid market. Gene made the remark that the addressable market was about a billion in size and 60% of that is non-contractual. I don’t think the current strategy is lining up well with these markets.
I’m also concerned about the dramatics drop-offs in Canadian and US sales from CQ3 to CQ4 (and maybe even the results from RBCs survey). Have the bulk of iPhone buyers already surfaced and will the new Blackberry models and slew of offerings from other companies capture the few consumers left that are willing to spend? I think I agree with those who state that overall market growth will be stunted in this time when more and more people aren’t looking to add to their budgets with a smartphone. Maybe pay-as-you-go data (or the reverse for some) is needed?
I sure do hope this year’s phone announcements will allow iPhone to pull even further ahead in the technology department, I just hope we hear about them sooner than later. Long term, I’m sold that the Apple ecosystem can’t be beat, but in the short term, I’m very concerned. On the positive side, the subscription accounting may finally be our friend and actually lessen the impact of a very poor iPhone number.
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DawnTreader
- [ Ignore ]
Please remember Apple’s entry into the phone market is in its nascent stage. Apple has no business shipping cheap PCs anymore than the company will find a profitable market shipping cheap cell phones.
Necessary components of the successful iPhone strategy are providing a revenue conduit for developers via of the app store while maintaining high product margins. Racing ahead with a lower-cost, low-margin iPhone does not make business sense if it erodes margins. For those territories in which the iPhone is not price competitive due to a lack of carrier subsidy, for now it might better suit Apple’s interests to focus on iPod touch sales than iPhone sales.
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All true, but I think many of us were getting ahead of reality when we were projecting worldwide sales percentages of addressable market that were too similar to home. Until recently Gene Munster had projected unit sales of 45 million for 2009. He’s now down to 28 million and I assume this huge drop comes from the recognition that worldwide sales aren’t anywhere near what he had forecast. I also agree that making a very low margin phone should have no place in Apple’s strategy. I do however think something that is somewhat lower margin than today’s iPhone might be necessary to break into certain foreign markets. I don’t think they’d ever stoop to making ‘just another phone’, that just doesn’t fit. Perhaps we’ll see the old 2.5G iPhone sold cheaply in market where 3G networks are not ready? Or, perhaps we’ll see a great new iPhone introduced in coming months for us, and today’s 3G will slide down the price curve accordingly? I always like the Touch as great answer when carrier prices don’t fit to a budget.
Question on the App Store - do most apps support multiple languages? Or, does the App Store suffer greatly if you don’t speak English?
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All true, but I think many of us were getting ahead of reality when we were projecting worldwide sales percentages of addressable market that were too similar to home. Until recently Gene Munster had projected unit sales of 45 million for 2009. He’s now down to 28 million and I assume this huge drop comes from the recognition that worldwide sales aren’t anywhere near what he had forecast. I also agree that making a very low margin phone should have no place in Apple’s strategy. I do however think something that is somewhat lower margin than today’s iPhone might be necessary to break into certain foreign markets. I don’t think they’d ever stoop to making ‘just another phone’, that just doesn’t fit. Perhaps we’ll see the old 2.5G iPhone sold cheaply in market where 3G networks are not ready? Or, perhaps we’ll see a great new iPhone introduced in coming months for us, and today’s 3G will slide down the price curve accordingly? I always like the Touch as great answer when carrier prices don’t fit to a budget.
Question on the App Store - do most apps support multiple languages? Or, does the App Store suffer greatly if you don’t speak English?
[ Edited: 10 February 2009 10:34 AM by pats ]
I agree with your analysis. As far as multi-language support the SDK supports localization files but not all the languages contained in OSX are currently supported on the Iphone. The developer has to choose wether to support localization and also chooses which App stores the app is built for. If you are interested in particular languages you can look at system preferences international on OSX to see which languages are supported. -
DawnTreader
- [ Ignore ]
Let’s keep in perspective the iPhone has been in the market only since late-June 2007 and is continuing its global roll out. What iPhone products will be in the market three years from now is most likely a much different product portfolio than what is available now.
I suspect we will see app-store enabled iPods filling the product line along with multiple iPhone offerings over the next 36 months. But today is not tomorrow and tomorrow is not today. Impatience rarely brings about successful long-term plans. I’m waiting patiently to see what might be unveiled in June and how the iPhone/iPod touch platform develops over the next thirty six months.
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DT, I do have confidence that Apple will figure this out given Tim’s comments on the call. He acknowledged the issue, noted facts like that iPhone pricing is very elastic, and that making a “cheap” phone is not Apple’s style. It will be interesting to see what the new models will bring. I can wait, but perhaps not patiently!
Pats, forgive my ignorance here, I see that the developer will choose what locales he supports, but does he also choose what App Stores his program is part of? Or, is this determined by matching country to language? Does a user of the Russian App Store see any apps where the Russian locale was not supported? Does the user have the choice of seeing English only apps in case he does speak English?
I guess I’m really wondering if the App Store is as powerful in foreign countries as it is here? If the Czech App Store has 163 apps instead of 15,000 then it’s not exactly the same draw as it is here.
[ Edited: 11 February 2009 01:33 AM by cranium ] -
DT, I do have confidence that Apple will figure this out given Tim’s comments on the call. He acknowledged the issue, noted facts like that iPhone pricing is very elastic, and that making a “cheap” phone is not Apple’s style. It will be interesting to see what the new models will bring. I can wait, but perhaps not patiently!
Pats, forgive my ignorance here, I see that the developer will choose what locales he supports, but does he also choose what App Stores his program is part of? Or, is this determined by matching country to language? Does a user of the Russian App Store see any apps where the Russian locale was not supported? Does the user have the choice of seeing English only apps in case he does speak English?
I guess I’m really wondering if the App Store is as powerful in foreign countries as it is here? If the Czech App Store has 163 apps instead of 15,000 then it’s not exactly the same draw as it is here.
The developer has to choose to localize his/her program which means at runtime the app will automatically use the version of the resources (nibs, images, sound, language) appropriate to the user’s language preference. Additionally the developer chooses which App stores their app will be available on at what price. A developer could put a non-localized (English version) of an App on the Russian store as far as selecting to see only localized apps on the App store, I am unaware of that capability. I have seen a site which tracks the top Russian Apps and they are definitely different then the US list.
I also look forward to see the direction Apple takes with the 3rd generation of Iphones.
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Gregg Thurman
- [ Ignore ]
Let’s keep in perspective the iPhone has been in the market only since late-June 2007 and is continuing its global roll out. What iPhone products will be in the market three years from now is most likely a much different product portfolio than what is available now.
I suspect we will see app-store enabled iPods filling the product line along with multiple iPhone offerings over the next 36 months. But today is not tomorrow and tomorrow is not today. Impatience rarely brings about successful long-term plans. I’m waiting patiently to see what might be unveiled in June and how the iPhone/iPod touch platform develops over the next thirty six months.
You stole my point.
How many years did it take RIM to achieve its current position? I think its eleven. I think we are expecting way to much, in to short a time frame, from the iPhone. It took 4 years, with several upgrades, for the iPod to conquer the world, I would suspect that it will take at least as long for the iPhone to do so.
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