iPhone Sales Drastically Surpass Q4 Consensus, Apple Reaches 10 million iPhone Goal

By ANDY M. ZAKY & TURLEY MULLER (Dual Authorship)
Based on the tremendous joint efforts by members at Mac Observer’s AFB  and Investor Village’s AAPL Sanity Board member howlongtoretire (aka HLTR) to track IMEI iPhone numbers, we have determined that Apple has drastically surpassed analyst’ Q4 iPhone sales estimates, and that Apple has reached its goal of selling 10 million iPhones in 2008. The consensus estimates for iPhone sales figures for Apple’s Q4 (calendar Q3) were calling for approximately 4 million units. It now appears that Apple has sold at least 7 to 7.5 million iPhones in Q4—that’s nearly 80% above consensus. Apple has far surpassed even Gene Munster’s bullish estimates of 5 million iPhone sales in Q4 according to the data.

At MacWorld 2007, when Apple was trading at the same price it is today, Steve Jobs and Apple set a bold goal of selling 10 million iPhones in 2008. Despite Apple’s consistent reassurances of meeting its goal, bearish analysts repeatedly raised irrational concerns about whether Apple could reach such lofty sales figures. In January, Bernstein Research analyst Toni Sacconaghi, an analyst who rarely comments on Apple, started the “missing iPhones controversy” which led to a herd of naive analysts to reduce their iPhone sales estimates to numbers that fell well below Apple’s 10 million iPhone goal for 2008. Sacconaghi forecasted that Apple would only sell 7.9 million iPhones in the period. This obviously put considerable pricing pressure on shares of Apple in February.

Kathryn Huberty of Morgan Stanley, arguably one of the worst analysts covering Apple, estimated that Apple would only sell 9.3 million iPhones for the year. Apple now appears to be on track to sell nearly double that number. Yet, Huberty and Sacconaghi aren’t the only ones. Keith Bachman of BMO Capital also jumped on the bashing Apple bandwagon in February when he estimated that Apple would only sell 8.5 million iPhones in 2008. Scott Craig of Bank of America also maintained bearish iPhone estimates in February with an 8 million iPhone sales target. Several other analysts followed suit and were obviously dead wrong. One would think these analysts would have learned from their mistakes, yet to no avail we see similar behavior from many of these very same analysts today.

IMEI Number Tracking by Mac Observer’s AFB
An IMEI number or an International Mobile Equipment Identity number is a unique 15 digit code assigned to each individual iPhone found on the back of the box in which an iPhone is packaged. Within this 15 digit code are two 6-digit numerical sequences crucial to determining the number of iPhones being produced. One 6 digit number, known as the TAC, or Type Allocation Code, signifies a particular build or set of iPhones being manufactured. The second 6 digit number is unique to each individual iPhone produced in that particular series—so that 1 million iPhones can be registered to a specific TAC. In other words, one six digit code, known as the TAC, signifies a set of iPhones being produced whereas the other six digit code signifies each individual iPhone within the TAC set.

Members at the Apple Finance Board at Mac Observer have been collecting IMEI numbers from new 3G iPhones sold during the period, and have been maintaining a spreadsheet of iPhone IMEI data points along with the purchase date, model, and production week. By early September, Apple was on its 8th TAC, meaning that 8 million 3G iPhones had already been manufactured. The actual number of handsets sold versus manufactured depends on a variety of factors including the amount of inventory Apple carries in its retail chain, defects that were destroyed, defects that were sold and then exchanged, display models etc.

However, the latest IMEI data point collected by AFB was 9,190,680—an 8GB Black iPhone recorded as manufactured on September 29 and sold on October 5. This suggests that even if a whopping 1.5 million iPhones of the total IMEI registered devices are unsold as of today, an unlikely assumption, it would still put 3G iPhone sales at 7.6 million units and 2008 iPhone sales at over 10 million units. Coming into the quarter, Apple had already sold 2.42 million iPhones. Thus, 7.6 million 3G iPhones sold puts Apple above 10 million units for the year.

Net Applications OS Market Share
The Net App OS share measurements based on web usage data lends further support to the IMEI tracking conclusions. In the weeks leading up to the 3G launch, iPhone OS share was rather consistent hovering at 16 bps. During this period, the population of iPhones remained static at 6 million units because inventory dried up weeks before. The share readings began to rise sharply subsequent to the 3G introduction. Due to the volatility and noise present in the data over the quarter, it’s not possible to make granular assessments. However, for the last few weeks of the September quarter, iPhone OS was averaging 34 bps. This suggests iPhone units increased by 6.75M. A small portion of legacy iPhones were replaced by 3G models resulting in those sales having no effect OS market share readings. Sales into the channel are not represented in the Net Applications measurement since the device is yet to reach the end-consumer. This data together with the IMEI Number Tracking by the AFB highly suggests that Apple more than likely sold at least 7 million iPhones in Q4 and that Apple has surpassed its 10 million iPhone target.

Disclosure: Both Andy Zaky and Turley Muller are Long Apple.

26 Responses to iPhone Sales Drastically Surpass Q4 Consensus, Apple Reaches 10 million iPhone Goal

  1. You guys are totally on Apple’s payroll.

  2. I do hope you are right, and I suspect that you will be. Sadly, the damage has already been done to Apple’s stock, by repeated and concerted attacks by hedge funds and shorts, often using ethically questionable tactics.

    All this makes me wonder why people like Kathryn Huberty even has a job. I wish that I could be so inaccurate in what I do, and be well compensated for it. It seems that stock brokerage analysts cast far too large a shadow for their own good, and often lead investors far astray from the truth. Perhaps TV weather reporters and stock market analysts are two occupations where you can get away with complete and utter incompetence, so long as you look and sound good.

    That said, I believe that in the long run, a stock’s price will track its earnings. And at this time, given Apple’s price declines, which I believe to be based on lies, false rumors and terrible analyst assessment, may give investors pause, just like today’s downswing in the Dow and worldwide markets. But if you look at earnings, not price, you will come to believe, as I do, that today is an opportunity, not a problem.

    I close with the insightful words of Warren Buffet, who famously said, “Be greedy we others are fearful, and be fearful when others are greedy.”

  3. I tend to believe the article based on a little personal view I have experienced. The wait time for a new iPhone anywhere in the Benelux is since July 08 between 5 and 7 weeks. You can’t get one unless you put yourself early on the order list! These things disappear as soon as they get in stock.

    I’d say though that some statements are emotional and not in touch with reality. Somewhere between the MS analyst predictions and this article’s will eventually be the truth.

  4. Andrew Abraham

    We have been discussing on myinvestorsplace.com apple…and even with the results.. why should an investor be long in this environment… please let us know..thanks

  5. Yes, most of us at AFB *ARE* on Apple’s payroll, after a fashion. Most of us have made a lot of money (some millions) by simply believing in Apple’s track record, crunching our own numebrs, noting the quality of the competition, and ignoring the “expert” analysts. I’m up about 3000% over the last 5 years, and right now I’m mostly cash, but I’m buying AAPL shares on each price drop.

    Why be long at all in this environment? Because great companies like Apple are going at fire sale prices. Warren Buffet, famously said, “Be greedy we others are fearful, and be fearful when others are greedy.” Those aren’t just platitudes. He just put $10B into this market last week.

  6. Andy M. Zaky

    @ Andrew…

    Andrew, I don’t usually give buy recommendations, but how many times do you think you’ll find Apple at $80.00 again in the future? If I were managing a fund that was completely in cash, I would be taking 1/3 of my position in Apple under $90.00. Then if Apple fell again into the low $80.00′s high $70.00′s I would take another 1/3 of a position. If alternatively, the market rallies and doesn’t fall into the low $80s/high $70′s, I would take 1/3 of a position above $100.00. I would take my final 1/3 position in Apple above $130.00 where I know a recovery is in effect. I’m not recommending that anyone should buy here, but that’s how I would play it.

  7. This is interesting analysis and the imei spreadsheet is a fantastic collaboration. However, if you run a statistical analysis of the spread of the numbers it is quickly pretty clear that it is extremely unlikely that the numbers are sequential in single units. Every unit in the sample ends in a multiple of 10 with the exception of one (which is probably a typo). If these are chance samplings then odds are your estimate is too high by a factor of 10 …

  8. I guess the rumors on Steve Job’s heath have subsided. Great to hear some good news today. Thanks.

  9. On the iPhone 3G Accessories selling websites you can choose for like its Chargers, FM Transmitters, iPhone 3g Cases Skins & Fabric and lots more to explore. All these iPhone accessories come in a great variety as well as in high quality which cannot be compared to accessories bought from the FommyIndia.

  10. Anonymous, the spreadsheet mentions in footnote 15 that the last digit of the imeis was zeroed for privacy reasons.

  11. Apple is such a religious that you all worship

  12. Michael (Amy's pet Kiwi)

    Guys,

    From an iPhone user but *long* time GSM expert (worked with Apple on connecting the Newton to GSM networks 14 years ago) about TACs. Each TAC may have *up to* one million phones. It’s a *Type* Allocation Code, so if there is a change (as is both very likely and known to have happened in some cases) in the hardware configuration, *particularly* as it involves RF, there’ll be a new TAC, but less, perhaps many fewer than one million phones in the TAC. Key question: are there high serial numbers present within each TAC range? If so, then you’re OK. If not, then there will be many fewer than one million phones associated with that TAC. YMMV.

  13. @anon “Apple is such a religious that you all worship”. Our PC/Mac preferences are not the issue here, our stock portfolio is. If you are buying APPL because you are a fanboi, that is a bad way to invest. If you are an investor because, the numbers add up, then this is good information to make informed decisions as to whether to buy/hold/sell. This adds credence to my information that the market has currently undervalued APPL once again.

  14. Andy,

    You provide a thoughtful and valuable service here. Sure appreciate your hard work and diligence. Well done! Please keep it up.

  15. Good information it gives me a better insight thanks.

  16. ^^ nice blog!! ^@^

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