[qi:053] iPhone’s first weekend didn’t turn out to be as hot as Wall Street analysts had predicted. The sales weren’t 700,000 or 500,000. Or 146,000 for that matter, as AT&T’s results might have indicated. The actual number was somewhere in between. In first 1.25 days Apple […]

[qi:053] iPhone’s first weekend didn’t turn out to be as hot as Wall Street analysts had predicted. The sales weren’t 700,000 or 500,000. Or 146,000 for that matter, as AT&T’s results might have indicated. The actual number was somewhere in between.

In first 1.25 days Apple sold around 270,000 iPhone, which is pretty impressive for a device that starts at $500. But it might be having an unintended impact on the sales of iPods, especially the more expensive video iPods.
Apple, which announced its fiscal Q3 (ending June 30, 2007) earnings today says that it will shop its millionth iPhone at the end of first full quarter the iPhone has been available – that works out to about 250,000 phones a month or about 5.6 phones a minute. That’s over $400 million in revenues for Apple, assuming an average median retail price of $550-a-device

Nevertheless, it also brings home the fact that Wall Street expected Apple to sprint ahead, even though the phone business is a marathon. And it will take a while before Apple can declare victory. Apart from the iPhone, looks like the iPod sales were down sequentially – something that could be explained by buyer interest in the iPhone.

In fiscal Q2 2007 10.55 million iPods brought in $1.7 billion. In fiscal Q3 2007 9.815 million iPods brought in $1.57 billion. That’s down 7% both in unit and revenue terms. Other music related product sales declined 7% as well during the quarter from the previous quarter. – from $653 million to $608 million.

Update: As some of our readers pointed out in comments, the quarterly decline is seasonal. I went back and checked the sequential quarters Q2 & Q3 2006, and the iPod sales declines were much higher in $ terms. The readers are right and I am wrong. Jobs and all said so in the earnings call, which I did not listen to entirely, and left before the call completed. Thanks for helping me see the error in my ways.

Interestingly, the iPod sales declined by about $130 million. In 30 hours or so, Apple got $148.5 million from 270,000 iPhones (assuming $550 median price.) Could this mean that iPhone is cannibalizing the high-end iPod sales?

MacUser blogged the conference call.

  1. Om,
    Historically iPod sales are low Q1-Q3. See http://blog.seattlepi.nwsource.com/microsoft/archives/118482.asp for reference. Sure Q2 – Q3 there has been an increase, But considering a lack of a model refresh, This is expected.

    Also the 700k number was for the opening weekend, not for the opening DAY. Apple reported 270k for the first 30 hours, wheich means they had an outside chance of reaching the 500k number being reported. Most probably they did not ..

    Also if you hear the conference call carefully, They repeatedly said they will reach 1 million by the next quarter. They never said that the estimate for the next quarter was 770k (Although a few analysts were assuming so.) The most interesting part of the conference call was the fact that they kept mentioning a product refresh.

    I would say iPhone sales are not cannibalizing iPods especially with the REQUIRED contract. iPod sales are bound to flatline /fall with no huge product refresh.

  2. While the results came in at the higher end of expectations, they do reinforce Apple’s reliance upon the Jobs machine.
    For more consideration click:

  3. Steve Jobs has answered the cannibalization question. He said that if anyone cannibalizes iPod sales, it should be Apple.

    I have a lot of respect for the way that Apple has not been afraid to introduce better products and make their top-sellers obsolete–look at what they did with the Nano and the Mini.

    That said, I hope they have something in the works for the iPod. Frankly, I’d prefer a product that had all of the same features of the iPhone, except for the phone part (but still with WiFi) but that had a 60 gig HD over an iPhone any day.

  4. See: http://www.tuaw.com/2007/07/25/liveblogging-the-apple-earnings-call/

    5:44pm: [...] “Any iPod cannibalization from iPhone?” We saw no obvious evidence of that.

  5. Well, I was going to buy a video ipod, then when I saw the iphone I justified the $500 price tag as a $200 price tag on top of the video ipod I would have bought…

  6. If I recall, the Wall Street guesstimate was based on calling up all the Apple Stores to assess remaining stock. I wouldn’t be surprised if Wall Street got it right, but not in the timeframe everyone assumed.

    My iPhone would have been one of the initial batch, but I know of at least 8 sales that came during the first week after I started showing the iPhone around. Colleagues report similar experiences.

    Now, if you were in the position of trying to buy an iPhone in that first week for a relative, you may be familiar with the “green and red” dots…

    Early in the week, virtually all stores had green dots, indicating stock. By the end of the week, the situation had changed dramatically. Driving a 100 mile radius to find somewhere with stock has been known to happen…

    Like a hit movie that can have a big opening night, but is judged on how long it sustains interest, this was a “grow by word of mouth” type product.

    If Apple sold 270,000 for the first 30 hours, and then a similar amount per 30 hour period into the first week, those Wall Street guesstimates wouldn’t have been far wrong.

  7. I would think it logical that iPod sales would decline with the release of the iPhone. In a sense, it is a better iPod…

  8. [...] this post by GigaOm kinda surprised me. I respect him tremendously. I think he has a very fun job – probably more fun [...]

  9. Apple explicitly said in the results conference call that there was “absolutely no evidence” of iPhone cannibalizing iPod sales.

  10. You compare sequential quarters when Apple’s business is so seasonal. Year on year, iPod sales grew substantially. If the iPhone were having an effect now, in 2007, it would show when comparing this Q3 with Q3 2006. iPod sales growth, or possibly outright sales figures – particularly for the high-end model – might be expected to slow, given that the last major refresh (5G, aka the video iPod) happened late in 2005, affecting form factor and internal design. The more recent facelift was very minor – expect new iPods in Q4, ready to be polished and revised for the holiday season (Apple’s Q1).


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