iPhone numbers are right and wrong

The media have been awash in speculation about iPhone numbers for the past few days. Apple said 4 million iPhones had been sold as of Macworld. But AT&T only activated a bit over 2 million. The three European carriers would be lucky to get a half a million additional. So the missing one plus million iPhones were "missing."

Some people said that they were in channel inventory. Others said that Apple had lied.

Not likely(Net Applications has some surprising numbers). They were sold by Apple to people who would use them outside of the parameters originally set up by Apple and the carriers. Let's see some examples of the demographic of an unlocker:

1. Someone not in the US, France, UK, or Germany who wants an iPhone now
2. Someone in the US, France, UK or Germany who is in the middle of a plan with another carrier and doesn't want to pay exorbitant plan break fees.
3. Someone who lives in the US, France, UK, or Germany and doesn't get adequate reception from Apple's chosen partners.
4. Someone who doesn't want to have to pay the carriers roaming fees when they travel.

The above represents at least 90% of the world. A lot of these people are wealthy and want what is perceived to be the world's best phone.

However, it isn't just unlockers that are buying outside of Apple's plans. As an American living in France, I had a few options when I recently purchased the iPhone here. The best for me was to buy it in the US and activate it on Orange with a Orange SIM and Orange iPhone plan. The savings? $170 after taxes (about 1/3rd of the price of a inexpensive round trip ticket to NYC). I am sure there are a lot of European frequent flyers that saw this option as well.

US iPhone price: $399+tax = $430

EU iPhone Price: €399 x 1.5 USD/Euro conversion rate = $600

Another surprising correlation to all of this is that the media are reporting that Apple is losing $300-400 million in revenue. That is simply not true if you consider that the revenue was never there to lose. These people are outside of the demographic with which Apple has set itself up to do business. Also, Apple is selling more iPhones by letting them be unlocked (Apple could always require you to open an AT&T account at the time of purchase if they really wanted to lock it down). From iSuppli's numbers, we know that the company is still making a profit on the handset alone - so why should they stop?

Apple simply has a two-tiered iPhone sales model. One official (with carriers) and one unofficial (unlockers). Because about 1/4 -1/3 of its sales are coming from the unofficial side of its model, it is significant. It will be interesting to see if Apple acknowledges this demographic in its upcoming earnings statement, as it represents such a high proportion of its sales.