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Summary:

[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.

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  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:
    http://sneakybusiness.typepad.com/sneaky/2007/07/apple-earning-1.html

  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. Vijay Chakravarthy Wednesday, July 25, 2007

    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. The Viamentis Blog » Blog Archive » Updates, and a little on the iPhone mania Wednesday, July 25, 2007

    [...] 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).

  11. iPod sales are up by a healthy margin year on year. You dont compare sales quarter to quarter due to seasonality.

  12. I think the big issue here is that as the iPhone interest went up, it slowed the sales of high end of iPod. It shows in the numbers – both units and revenues are down quarter over quarter. It is important to note that – even though the situation might be slightly different next quarter.

    if there is a big iPod refresh – well sure the sales are going to go up. if the numbers continue to trend down, then they have an issue. i have been wanting to refresh the iPod, but the iPhone made more sense – bigger and better screen.

  13. Hi folks,

    You are right. Looked at the 2006 Q2 and Q3 numbers and revenue decline in iPod sales is actually higher, and yes you are right, this is seasonal.

    Apologies accepted?

  14. Jacob Varghese Thursday, July 26, 2007

    I thought the weekend included Sunday. All of these numbers from Apple and AT&T only include Friday after 6pm and Saturday. They could have had a great day on Sunday.

  15. is it 270,000 iphones, or 270,000 iphones and related iphone devices. The official statement released by Apple has a footnote that states “(6) Consists of iPhones and Apple-branded and third-party iPhone accessories.”

    That could be big difference in # of phones

  16. You can’t compare Q2 to Q3 for the same or different year – no one does that analysis as there might be differences in the number of weeks or what holiday falls where. Even when you compare Q2 from one year to another, you have to factor in the number of weeks or if a holiday falls in it one year but not the next. That would be like comparing rain patterns from spring to summer. It doesn’t tell you anything.

    In terms of iPod sales, the fact that Apple can continue to pull in double digit sales increases without having the cost of redesign and keeping prices up even when component prices are dropping shows you that the iPod has plenty of life left and Apple can wait to release an upgrade.

  17. jayrecommends Thursday, July 26, 2007

    Seems like only yesterday that folks were having so much trouble with Windows XP and it took 2 years to work all the bugs out. To those that bought the iPhone on the first day and paid the high dollars for it, I can only say “You should have known”. No doubt it’ll improve over time and the price will come down. I, like most other people in any type of business for themselves, try to predict trends and what the public wants, but it’s still only guesswork.

  18. The Iphone has about a third of the features of my cingular/ATT 8125 and sells for $500 less.
    Anyone who bought an Iphone bought hype and little else.

  19. 1 million devices in one quarter is 333k devices per month, or am I mistaking?

  20. ATT 8125 with 2/3’rds more features?
    Other than word/excel/powerpoint mobile, what are these other features?

    This dog of a phone plays WMV/Plays for shure files, the camera resolution is not outstanding either. WMV files? Yuck.

    I don’t think you are the target demographic for the iPhone.

  21. Harry Potter and the iPhone Thursday, July 26, 2007

    [...] But the problem with hype is that  you have to live to it. And in both cases it was hard. Om Malik has a good article on how the iPhone has not lived up to its expectations. And with Harry Potter being sold at a 40% [...]

  22. Om,

    You are among the few who reported this and later corrected the article when confronted with the facts about the true number situation. Bravo!

    The fact that did this (and in a very transparent way) is much of what brings me back to your site each day.

    Best regards and thank you.

  23. Guruprasad V Friday, July 27, 2007

    Hi Om,

    I think that guys like you’re putting too much pressure by predicting numbers which are ridiculous, awkward, meaningless and ofcourse idiotic. Please don’t look anything and everything in a week, month or a quarter. These are all long term bets. I think APPLE is also succumbing to numbers game. Wait for sometime and then come to conclusion. Your so called intelligent calculation of Median (Which you worked around $550) is absolutely absurd. I think that intelligent analysts and tech writers like you are putting too much pressure to Apple. I think folks like you are coming up with numbers on their own terms and they’re coming into conclusion about success or defeat about a product. Give APPLE a break.

  24. Ipod Express » Blog Archive » Apple Earnings Call Behind the Highlights: iPhone Cannibalizing iPod Sales? (Update: Probably Not) Friday, August 10, 2007

    [...] all the more interesting. Cue the wild speculation as to which product he’s referring to. [GigaOM & [...]

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