Quarter of iPhones Unlocked: Analyst

More than a quarter of people who bought Apple’s iPhone are using them on wireless networks other than AT&T’s, the exclusive iPhone carrier in the U.S., a "stunning" number that will pressure the company’s business model, an analyst said on Monday.

Bernstein Research analyst Toni Sacconaghi said analysis of sales numbers from Apple and AT&T revealed about 1.45 million phones were "missing in action" at the end of 2007.

About 480,000 of those were believed to be held by AT&T as inventory, leaving another 1 million phones, or 27 percent of the total, that Sacconaghi said were "unlocked" so they could work on non-AT&T networks.

Apple executives said last week the number of unlocked phones was "significant" but declined to give an estimate. Most analysts had estimated the portion of unlocked phones at under 20 percent.

Spokespersons for Apple and AT&T declined to comment.

The higher number is worrying for Apple because the company receives a cut of AT&T’s iPhone service fees, revenue that carries a high gross margin and has fueled optimism over its earnings potential.

For example, Sacconaghi said, if Apple hit its sales goal of 10 million iPhones by the end of fiscal 2008 but 30 percent of those don’t result in any carrier payments, its revenue and profit would be $500 million and 37 cents per share lower than expected.

If Apple cracks down on unlocked phones it could preserve its high margins but miss its sales target, whereas allowing them could erode profitability and make it tough to sign more carriers to similar revenue-sharing deals.

"Besides the financial implications, we believe the prevalence of unlocked iPhones presents a significant strategic dilemma to Apple," Sacconaghi wrote.

Apple shares closed unchanged on Monday at $130.01. Over the past month the stock has fallen 35 percent on concerns over consumer spending and what some analysts say are a lack of must-have products Apple has lined up this year.

CIO Insight Staff
CIO Insight Staff
CIO Insight offers thought leadership and best practices in the IT security and management industry while providing expert recommendations on software solutions for IT leaders. It is the trusted resource for security professionals who need network monitoring technology and solutions to maintain regulatory compliance for their teams and organizations.

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