Apple breaks records... and disappoints?

After the company misses lofty iPhone 5 sales estimates, investors send shares lower. Analysts weigh in.

By Sep 24, 2012 3:15PM
Apple (AAPL) had a record-breaking weekend, selling 5 million iPhone 5 units in the first three days of its launch -- 1 million more than during the iPhone 4S launch last October. However, the iPhone producer missed the lower end of most analyst estimates for its weekend launch; sales were predicted to be between 6 million and 10 million units.

Why did Apple miss expectations?

It appears that the fears of Apple's supply constraints for the new smartphone materialized. CEO Tim Cook acknowledged this in a press release, saying, "We have sold out of our initial supply." He also said that "demand for the iPhone 5 has been incredible and we are working hard to get an iPhone 5 into the hands of every customer who wants one as quickly as possible." Apple is still taking orders for the iPhone 5 online. (You can view the Apple press release here.)

Analysts also believe a scarcity of units caused the sales miss. According to the AP, Topeka Capital Markets analyst Brian White said the miss occurred because of limited supply. He said 80% to 85% of U.S. Apple stores had run out of the phone by Sunday evening, and some Apple stores did not know when their next shipment would arrive. 

ISI analyst Brian Marshall said he believes that Apple faced more supply constraints than originally anticipated. Both analysts still think Apple will perform well. According to White, Topeka Capital remains "an aggressive buyer of Apple on any weakness in the stock price," still viewing the iPhone 5 as another Apple "blockbuster." Marshall projects 10 million iPhone 5s to be sold for the third quarter of this year and 41 million phones to be sold in fourth quarter, calling his estimate "very conservative."

Gene Munster of PiperJaffray (who estimated that 8 million iPhone 5s would be sold this past weekend) identified two factors impacting the sales number. Munster assumed that Apple would include all pre-orders in the sales number released today. The pre-orders that did not get filled may have added an additional 1 million units to the sales number.

He also assumed that 8 million phones would be sold if Apple had full inventory for the entire weekend. Instead, Apple stores had 1.25 days of retail inventory compared to 2.5 days of retail inventory for the iPhone 4S launch. CNN Money lists the comments of Munster, White, and two other analysts here.Credit: 2012 Apple Inc
Caption: Apple iPhone 5

Apple's retail partners were undersupplied for the launch. The Wall Street Journal reported yesterday that Apple sent limited quantities of the iPhone 5 to Best Buy (BBY), RadioShack (RSH) and other partners. Apple stores have had a higher stock of iPhones in the past, but the difference seemed more pronounced this time.

Some Best Buy stores received as few as 10 phones for the launch compared to others that received as many as 40 phones. RadioShack also reported receiving a scant amount, with a Chicago store only receiving 20. The Target (TGT) store outside San Francisco said it only received eight, but customers had pre-ordered 30.

Retailers have emailed customers saying that their pre-orders will be filled when a new shipment arrives. However, many sales representatives at retail stores throughout the country do not know when this will occur. A Target store in Chicago received only one additional phone to sell on Saturday.

Shaw Wu, an analyst at Sterne Agee, estimates that Apple is producing between 550,000 and 600,000 iPhone 5 units per day during its December quarter, with more than a third expected to reach U.S. stores. Wu stated that his firm is not overly concerned with the "disappointing" iPhone 5 sales number. Sterne Agee believes that near-term expectations were out of touch with reality.

The iPhone 5 will go on sale in 22 more countries on Friday.

Shares of Apple were down 1.4% Monday afternoon to $690.49.

More from Minyanville
Sep 24, 2012 5:38PM
They are out of iPhone 5's in the USA but it will go on sale in 22 more countries on Friday? I'm cancelling my back order. That's BS.
Sep 24, 2012 5:36PM
Sep 25, 2012 6:45AM
Thinking that they will fill all the US orders for phones before they start distributing phones to international clients is a really simplistic view of global operations.
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