Can the Apple iPhone Match Expectations? Optimists Think It Will Outsell the iPod MARKETPLACE By Blo

Jun 26, 09:25 AM

Current Headlines: By Connie Guglielmo

Apple, whose market value passed $100 billion in May as euphoria mounted over its iPhone, faces soaring investor expectations.

The iPhone is to go on sale in the United States this Friday. Apple could sell as many as 200,000 iPhones in the first two days after the gadget goes on the market, and as many as 3 million in the second half of the year, according to the most optimistic estimates by analysts. Apple, in its only public forecast, said it planned to sell 10 million next year.

Sales at those levels would outdo those of the iPod, the best- selling Apple product to date, for comparable periods. The danger, of course, is that Apple could fall short of projections for initial sales and dampen investors' enthusiasm for the product.

"There's definitely a lot of buzz," said Andy Hargreaves, an analyst at Pacific Crest Securities in Portland, Oregon. "If they only sell 100,000, that would be bad" and the stock would fall. Hargreaves is one of two analysts predicting two-day sales of 200,000.

Since the chief executive of Apple, Steve Jobs, unveiled the iPhone in January, Apple shares have gained 44 percent - almost seven times the growth rate of the Standard & Poor's 500 stock index. The shares closed at a record high level of $125.09 last week. They climbed $1.67 to $124.67 in afternoon trading in the United States on Monday.

Investors are betting that Jobs can deliver on his sales promise and give Apple a foothold in an industry that is almost four times as big as the personal computer market.

The iPhone will become Apple's third major business, along with the Macintosh computer and iPod player, each of which has sales of about $10 billion a year, Jobs told people attending a conference last month. Slimmer and higher-capacity versions of the iPod and faster Macs built with Intel chips helped sales more than triple in five years, to almost $20 billion in 2006.

The iPhone could have a greater effect on Apple revenue than the iPod because of its price and prospects. Apple, with its partner, AT&T, will sell two models, a four-gigabyte version for $499 and an eight-gigabyte model for $559. IPods start at $79 for the Shuffle and up to $349 for the most expensive video-playing version.

Apple will also get an undisclosed portion of the monthly subscription fee charged by AT&T, the exclusive wireless service provider for the iPhone. A two-year contract with AT&T is required.

Analysts have said they do not expect the iPhone to have a significant effect on Apple revenue this year or next because the company said in April that it would recognize revenue from sales of the device over two years, rather than in the quarter it is sold.

AT&T, based in San Antonio, may pay Apple $5 to $10 per month per subscriber, said Benjamin Reitzes, an analyst for UBS in New York. He estimated sales of 150,000 iPhones on Friday and Saturday, the final two days of the third fiscal quarter for Apple. Reitzes said that would add more than $8 million to Apple revenue for the quarter.

A spokeswoman for Apple, Natalie Kerris, declined to comment.

Apple could report a 21 percent jump in total third-quarter revenue to $5.29 billion, according to the average estimate of analysts surveyed by Bloomberg. Fourth-quarter sales could rise 24 percent to a quarterly record of $6.02 billion, the analysts estimated.

The iPhone price and the required service contract - a boon to Apple if unit sales reach projections - could prove a deterrent to some potential buyers.

While 60 percent of 465 people questioned in an IDC survey released last week said they were interested in the iPhone, just 10 percent said they might buy one at full price.

Outside of early adopters and die-hard Apple fans who will buy an iPhone regardless of price, "the associated costs of ownership will persuade many others to take a 'wait and see' position," said Shiv Bakhshi, a researcher for IDC in Framingham, Massachusetts.

One of the least optimistic sales projections for the first two days was 50,000 units, by Shaw Wu, an analyst at American Technology Research in San Francisco.

"The iPhone is not a simple sale," Wu said. "You have to sign up the customer for service. Can they even get a couple of hundred thousand people through the stores in two days?"

Expectations that the iPhone might outsell the iPod led Gene Munster, an analyst for Piper Jaffray, to raise his share-price forecast this month for Apple by 14 percent to $160.

Munster expected iPhone sales of 200,000 units the first two days, 1 million in the quarter ending Sept. 30 and 2 million in the holiday quarter. Apple sold 381,000 iPods in the first year after its debut in October 2001.

The iPhone will go on sale at 6 p.m. Friday in each time zone in the United States. Apple will sell it through its Web site and 162 retail outlets, as well as at 1,800 stores owned by AT&T.

(c) 2007 International Herald Tribune. Provided by ProQuest Information and Learning. All rights Reserved.