What If Apple Threw an iPhone Party and Nobody Came?

The market's generally raving about Apple (Nasdaq: AAPL  ) generating a million preorders for the iPhone 4S during its first 24 hours of availability.

Those who are just deciding now that Apple's latest smartphone would look good in their clutches are in a bit of a pickle. They can either put up with long lines at the local Apple store on Friday morning for limited in-store availability for walk-ins or order online and deal with what is now a one- to two-week shipping delay.

Just a week ago, everyone was ranting about how the new iPhone didn't have a bold new design, lacked NFC and 4G LTE whistles, and failed to deliver on the larger touchscreen displays that are growing more popular on some Android handsets.

Are we just supposed to forget about all of that because a million shiny new iPhones have been spoken for?

I'm not -- and I'm good for two of those million iPhone 4S preorders.

Why am I disappointed at the million fanboy march? Well, we have to put this in context.

For starters, a million isn't as big a number as you might think. Google's (Nasdaq: GOOG  ) Android continues to grow its smartphone lead over Apple's iOS -- and this obviously isn't going to change with the iPhone 4S. The same Research In Motion (Nasdaq: RIMM  ) that many investors have left for dead has 70 million BlackBerry accounts under its watch -- and growing.

However, let me get to the two reasons why I think this number should have been higher. Apple had 600,000 preorders for last year's iPhone 4 in its first 24 hours. This clearly shatters that old record, but there are two asterisks that need to be added.

The iPhone 4 rolled out in June of last year, but it was only available through the country's second-largest wireless carrier. Verizon (NYSE: VZ  ) ended AT&T's (NYSE: T  ) exclusivity earlier this year, and Sprint Nextel (NYSE: S  ) came on board with Friday's preorders. In other words, the iPhone's wireless carrier base has tripled. Orders? Not so much. Put another way: AT&T preorders are likely down sharply compared to the 600,000 it cleared on a day when the Apple and AT&T sites experienced outages last year.

We also need to discount the longer-than-usual gap between iPhone releases. Apple has historically updated its smartphones in June or July of each year. This time there is a 16-month gap between introductions. This may not seem like a big deal, but keep in mind that wireless carriers subsidize iPhones by sticking buyers with two-year service contracts. In other words, when a new Apple phone comes out, the vast majority of existing iPhone owners -- those who have bought in over the past 24 months -- can't upgrade because they are still under contract. Going from 12 months between releases to 16 months buys Apple 33% more time to grow its potential base of upgrades.

Maybe Apple has spoiled me, but yesterday's announcement didn't impress me at all.

If you want to see how the iPhone disrupts the industry, follow the relevant companies by adding Google and Apple to My Watchlist.

The Motley Fool owns shares of Google and Apple. Motley Fool newsletter services have recommended buying shares of Apple, Google, and AT&T. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


Read/Post Comments (10) | Recommend This Article (3)

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  • Report this Comment On October 11, 2011, at 10:30 AM, H3D wrote:

    Whaaaaaa

  • Report this Comment On October 11, 2011, at 10:35 AM, H3D wrote:

    Oh, and AT&T didn't sell 600,000 last year.

    That was a worldwide figure. AT&T would be less than half of that. It's only AT&Ts systems that went down.

    You can prove anything if you don't understand what the numbers mean. Or if you distort them diliberately of course.

  • Report this Comment On October 11, 2011, at 10:59 AM, SkippyJohnJones wrote:

    I'm less than blown away by the 1M+ number announced yesterday, but it does still validate Apple's decision to hold off one more year on a major redesign. There is enough under the hood that Apple's phone is sufficiently differentiated from the competition. Because the changes are around software and actual performance, rather than specs, the company has bought itself another year of rabid buying, while driving down the manufacturing costs and allowing for a much faster global rollout.

    Ultimately, Apple is very unlikely to lose existing customers due to its strong ecosystem. To please current owners, they need only to put out a new iPhone that is better than the one being replaced; most won't shop the Android aisle. New smartphone customers are the real target, and I think Apple, with iCloud and Siri, has a very accessible product for first time buyers. The alternative is one of 20 'droids that look and feel very similar to an uninformed buyer, many more expensive than the iPhone they want.

  • Report this Comment On October 11, 2011, at 11:05 AM, chadscards1274 wrote:

    Rick, there are a few things to think about in response to your article. First, as you correctly point out there were about 16 months between the last and current iPhone models. My question is since you already brought up the 24 month contracts that most people sign up for does it not occur to you that there might be a lot of people waiting to upgrade who just can't yet? We need to realize that 2 year contracts don't always coincide with when Apple releases a new model. For instance, what about the person who now wants and iPhone but has 3-6 months left on their contract? The answer of course they are going to wait. For most it doesn't matter how big their desire to get an iPhone is, they aren't going to pay full retail.

    One more thing, it's simply not realistic to expect 3 times the orders for a new iPhone just because there are 3 times the carriers. There are many people who went with the iPhone 4 when Verizon first made it available they would still be under contract. AT&T as everyone knows has had iPhones for years and certainly quite a few of those customers are still under contract. Sprint is just getting the iPhone, maybe a better proxy for how well sales are doing would be the adoption rate at Sprint (from what I heard they have sold out of the 16 GB model).

  • Report this Comment On October 11, 2011, at 11:06 AM, H3D wrote:

    @skippy

    Apple did not say how many they sold. Only that they had sold over a million.

    Maybe they sold 1.3 million or 1.8 million.

    In Apple speak that is still over a million.

    Don't make any upper bound assumptions.

  • Report this Comment On October 11, 2011, at 11:44 AM, blipsman wrote:

    Your analysis of iPhone sales failed to look at some very basic considerations...

    First off, how many AT&T customers switched carriers this time around, so a number in the column for Verizon or Sprint is one out of the AT&T column? Your assumptions are that the new carriers are purely new customers/growth, when in fact they are allowing existing customers to change carriers. And how many of those customers at Verizon/Sprint are in the middle of contracts they're not going to just break to get an iPhone? Those fanboys who JUST HAD TO HAVE an iPhone went with AT&T even if it had subpar service. Those who stuck with their carriers may want an iPhone and will get one for their next phone, but won't break a contract or pay unsubsidized prices to get one.

    Additionally, previous iPhone purchasers were allowed to upgrade right away when the iPhone 4 was released, even if they'd bought a 3GS the year before. As a purchaser of an iPhone 4 about 2 weeks after launch, I am not eligible to upgrade until Dec. according to the Apple site, unless I want to pay the full $650. For a $450 savings, I'll wait 2 months, and I'm sure most of those who bought the iPhone 4 will do so, as well.

  • Report this Comment On October 11, 2011, at 11:53 AM, deemery wrote:

    As usual, there's some good analysis at Asymco.com that's worth reading. Horace looks first at likely sales of the 4s. Today's posting looks at prospects for upgrades (versus new users). As a parting shot, he notes that only the iPhone has an established record and an upgrade path for its users; the Android phones are generally too new and splintered to show a succession pattern.

    (Corporations replace their laptops on average I think every 3 years.)

  • Report this Comment On October 11, 2011, at 12:16 PM, mickm9 wrote:

    Today Verizon is saying that shipping of orders for the 4s are delayed because of Steve Jobs' death. Was surprised that's the reason they're giving now. I pre-ordered a 4S thru Verizon last Fri. Checked on my order status today & a verizon agent (in online chat) typed, and I quote... "The phone will ship on 10/20/2011. Due to death at the company the date was pushed back to the 20th. All devices coming from Apple was delayed."

  • Report this Comment On October 11, 2011, at 1:40 PM, 1984macman wrote:

    Wow. What a convoluted way to try to win an argument. And all of it based on tortured logic! An example: Claiming that adding Sprint and Verizon to the mix created a carrier base three times larger than last year. Sprint and Verizon together have twice the carrier base as ATT? I don't think so. Per wikipedia, Verizon has 102 million, Sprint has 53 million, and AT&T has 97 million That's two and a half times, not three. And counting Sprint customers at all is pretty darned feeble, since they literally have only had a few weeks to consider the idea. Finally, a lot of Verizon customers bought into the iPhone 4 a little over a half a year ago. Clearly, those people won't be upgrading to a new phone for quite some time.

    And even though ATT says that, in spite of its huge problems handling orders this year just like last year, they had their best presales ever, the author asserts that their presales are "likely down sharply". He obviously knows better than they do what their presales were like!

    And then he suggests that the sales were always going to be larger because there was more time between iPhone releases. Sixty-six percent larger? Please!

    But its his first series of statements that is most laughable. He says that really, it's no big deal because Android is growing even faster and besides, RIMM ain't dead yet! RIMM may not be dead but you can stick a fork in 'em, because they're done. The only reason they've hung in this long is because they already had a base of customers for a smart phone (of sorts) and a huge distribution network already in place.

    And as concerns Android manufacturers, check out the sum total of their customers for smart and dumb phones. They aren't changing. All that's happening is that they're convincing existing customers to switch from their dumbphones to their smartphones. Compare that to Apple, which started this game with ZERO customer base, and for whom the majority of new owners are people who've never owned an Apple phone before. And then check out the satisfaction rate for smartphone owners, where Apple is literally in a class of its own. Once you own an Apple you very, very rarely switch back.

    Bottom line: Much as it must pain the author of this missive, the huge preorder numbers for the 4S do in fact portend a hugely successful launch of Apple's new smartphone. And it also continues the Apple tradition of so-called analysts being caught with massive amounts of egg on their collective faces.

  • Report this Comment On October 17, 2011, at 4:22 PM, deemery wrote:

    >Bottom line: Much as it must pain the author of this missive, the huge preorder numbers for the 4S do in fact portend a hugely successful launch of Apple's new smartphone.

    Yup. Apple announced today (17 Oct) more than 4M iPhone 4S were sold in the first 3 days.

    > And it also continues the Apple tradition of so-called analysts being caught with massive amounts of egg on their collective faces.

    A tradition I'm sure will be continued when these so-called analysts get severely embarrassed by Apple's quarterly results tomorrow. Monkeys throwing their "by-products" against the wall are almost as accurate :-)

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