Apple’s iPhone Launch Wasn’t as Good as It Seems

by Brad Moon | September 24, 2013 2:08 pm

Investors have always been quick to react to Apple’s (AAPL[1]) annual iPhone launch weekends.

As mobile devices have come to dominate the company’s bottom line, those launches have gained in popularity as a metric for gauging the likely success of the iPhone in the coming year. While the natural expectation might be that AAPL would see a boost after Apple announces those sales numbers for the three-day launch weekend, the actual trend has been for AAPL to slide in the week afterward as the launch (even if it’s good) inevitably fails to live up to heightened expectations and rumors that reach a crescendo before the big reveal.

So far the iPhone 5s and iPhone 5c launch hasn’t followed the same script. Numbers are up in a big way, but so is AAPL. What gives?

My guess is that expectations for the latest launch were set low after last year’s modest showing and lowered further by worries that the iPhone 5s –a look-alike to last year’s model that ignores consumer pressure for larger smartphones — would fail to ignite upgrade fever among users.

There were also concerns that the iPhone 5c is not the “cheap” iPhone needed to conquer the middle to low market and China. However, Apple blew the barn doors off with a launch weekend that saw a record 9 million new iPhones sold[2]. And Apple stock has been up about 4% since the news.

However, those sales numbers may not be exactly what they sound like.

First, let’s look at iPhone launches over the past several years and the market response to each. In 2010, Apple sold 1.7 million units of the iPhone 4 during its launch weekend, representing what CEO Steve Jobs described as “the most successful product launch in Apple’s history.[3]” In the week after, AAPL took a 7.5% slide, despite the positive numbers. Much of the negative reaction was pinned on reports of issues with the new iPhone’s antennae — a rare slip that became known as “Antennaegate.”[4]

The follow-up iPhone 4S sold 4 million units during its 2011 launch weekend. You’d think those numbers — a 135% increase in launch weekend sales — would be enough to impress investors. But AAPL slipped nearly 7% in the week following the launch.

In 2012, the iPhone 5 sold 5 million. This was a modest yearly increase given the gains the company had reported over the past several releases, and the outcome was predictable — AAPL fell down 5%. Further, the slowing rate of iPhone sales growth was taken as a sign that the company’s glory days might be over and the iPhone 5 launch marked the start of AAPL’s big decline. Apple stock peaked at just over $700 a few days before the iPhone 5 launch and dropped by as much as 44% earlier this year before recovering somewhat as the panic wore off.

Which brings us to the most recent iPhone launch.

In raw numbers, the 9 million iPhones Apple says it sold over the weekend is incredible. That’s more than double the 3.7 million devices BlackBerry (BBRY[5]) sold in the entire previous quarter. It’s a 125% increase over the relatively anemic iPhone 5 launch and easily exceeds analyst expectations in the 6 million to 7 million range.

However, this launch has been markedly different than previous ones. The iPhone 4 launched in 5 countries initially, and in the U.S. it was an AT&T (T[6]) exclusive. The iPhone 4S launched in 7 countries, including three carriers in the U.S. The iPhone 5 launched in 9 countries and in the U.S. it again was available for AT&T, Sprint (S[7]) and Verizon (VZ[8]). In other words, successive iPhone launch weekends have seen the potential market for the devices — and thus the pool of early adopters — increase every year.

This past weekend, Apple released not one, but two new iPhone models: the iPhone 5s and the iPhone 5c. They covered slightly different price points, with the iPhone 5c being $100 cheaper. In the U.S., the new iPhones were available through four wireless carriers, with T-Mobile (TMUS[9]) being added to the mix. The new iPhones were available in 11 countries at launch, and for the first time, one of those countries was China — the world’s largest smartphone market[10]. Comparing this iPhone launch to previous ones is truly a case of comparing apples to oranges.

Making things even murkier are reports from the Wall Street Journal that of the 9 million reported sold, 3 million to 4 million units might be iPhone 5c units that remain sitting on shelves[11] at non-Apple retailers. The flagship iPhone 5s did sell out, but Apple hasn’t confirmed how many units that represents. So how many iPhones were actually in consumers’ hands after that weekend? Good question.

If investors have been guilty of being bearish on Apple after previous iPhone launch weekends, this time around seems to be the opposite. I’m not saying Apple isn’t going to sell a ton of iPhones and have a killer year. What I am saying is that I’d take that 9 million sold number with a big grain of salt, and don’t buy Apple based on an expectation that the company will sell 125% more iPhones in the coming year.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

  1. AAPL:
  2. 9 million new iPhones sold:
  3. he most successful product launch in Apple’s history.:
  4. “Antennaegate.”:
  5. BBRY:
  6. T:
  7. S:
  8. VZ:
  9. TMUS:
  10. the world’s largest smartphone market:
  11. 3 million to 4 million units might be iPhone 5c units that remain sitting on shelves:

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