Analyst: One Million iPhones Unlocked Last Year

Published January 30, 2008

| London Times

More than a quarter of iPhones sold worldwide are being used on networks other those that of Apple's exclusive partners, leading to significantly reduced revenues for Apple, a market analyst concluded Monday.

Sanford C. Bernstein researcher Toni Sacconaghi suggests that about a million iPhones — 27 per cent of the total sold — have been unlocked, allowing them to run on unauthorized networks.

As a result, Apple is missing out on its share of monthly fees — estimated to be between $10 and $20 per month per iPhone — it would get if the phones were run on designated networks.

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The figure is significantly higher than the previous estimate of 750,000 unlocked iPhones, and could contribute to as much as $500 million in lost revenue, making it a "significant strategic dilemma for Apple," Sacconaghi wrote.

Apple has said that the number of unlocked iPhones was "significant" but has declined to give details.

The iPhone, which was launched last summer, is tied to a single network in the U.S., France, Germany and Britain, with carriers agreeing to share a undisclosed portion of customers' monthly bills with Apple in return for being the sole national distributor of the device.

Sacconaghi based his analysis on figures from Apple which suggested that the company sold 3.75 million iPhones in 2007.

Subtracting the 2 million devices that AT&T said it had activated, and an estimated 315,000 activated in Europe, that left 1.45 million phones "missing in action," Sacconaghi said.

Assuming 480,000 of those were being held by Apple and AT&T as inventory, that left about a million that had been "unlocked," meaning that their owners had downloaded a piece of software which allows the phone to operate on almost any network they choose.

The figure was astounding, Sacconaghi said, given that an unlocked iPhone generates about 50 per cent less revenue and about 75 per cent less profit for Apple than one running on an authorized network.

If 30 percent of the 10 million iPhones Apple hoped to sell in 2008 were to be unlocked, then the company's earnings might be about 37 cents per share lower in each of the next two years, he said.

Apple has declined to comment on the report.

Another analyst firm, Piper Jaffray & Co., estimates that just under 850,000 iPhones — or 25 percent of the total sold — were unlocked last year.

[Yet another analyst, Technology Business Research's Ezra Gottheil, argued that the unlocking of iPhones may bother Wall Street more than it does Apple itself.

"Every iPhone sale brings profit to Apple, and many of them also bring in new customers for other Apple products," Gottheil wrote.

Percentages of monthly service fees are "generated at no cost to Apple, on top of the profit from the sale of the iPhone itself."

Piper Jaffray analyst Gene Munster told The New York Times that his spies had noticed something interesting at Apple stores in New York, San Francisco and Minneapolis: the first step in a gray-market pipeline of iPhones to Asia.

"The majority of the people who were buying more than one phone were Asian, and they were bringing small buses of people who all buy more than one phone," he said.

The iPhone, reasonably priced by Asian standards, is not yet officially available in Asia.

Sacconaghi told The New York Times it was possible the Asian gray-marketers had themselves overestimated demand and were sitting on their own backlog of iPhones.

In October, Apple conceded that 250,000 iPhones sold in the U.S. had not been activated on AT&T's network. A week later, it stopping taking cash for iPhones at its retail stores, and limited sales to two per customer.]

Apple shares closed unchanged at $130.01 Monday.

The stock has fallen by more than 25 percent in the past two weeks amid concerns that a slowdown in consumer spending may affect sales of electronic goods such as computers and media players.

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