Apple (NASDAQ:AAPL) on Monday announced that it has sold 5 million units of iPhone 5 during the first three days of sale since the September 21st launch last week.  While this figure is about 25% higher than the 4 million iPhone 4S units it had sold during the opening weekend last year, it has decelerated significantly from the high sales growth recorded back then.
Apple’s opening weekend sales for the 4S last year had grown by an astounding 135% over iPhone 4 which, in turn, had seen 70% higher sales than the 3GS. What is even more disappointing is that Apple has also increased the number of launch countries from 7 to 9 this year, which indicates that Apple has actually sold fewer number of iPhones per country in the opening weekend this year than during the iPhone 4S launch.
Pre-orders dent weekend sales
The sales result was received poorly by investors with the stock falling by about 2% on Monday. While the numbers were undoubtedly below market expectations, we believe it is unwise to read too much into the initial sales figure as it may not be an appropriate gauge of demand. Apple’s sales figures for the opening weekend include only those units that were sold into partner channels, retail stores and directly to pre-ordering customers. Due to overwhelming demand, Apple may have managed to ship only a portion of the pre-orders due to supply constraints. Further, considering the huge pre-order demand for the iPhone 5 (Apple saw twice as many pre-orders for iPhone 5 as the 4S on the launch day), we believe that an increasing number of people are choosing to adopt the pre-order route this time. This could have skewed the opening weekend sales downward since Apple doesn’t record sales until the customer has accepted delivery of the device.
If we consider all of the pre-orders that were made in lieu of standing in queues to get an iPhone directly on launch day, the sales figure could actually be much higher. Apple, for its part, acknowledged that demand exceeded the initial iPhone 5 supply. While it is still unclear exactly how much of the pre-order demand has been fulfilled, Apple said that its has managed to ship a “majority of pre-orders” to customers. This, to an extent, mitigates the supply constraint reason for the lower-than-expected sales but more people preferring to pre-order the device still remains a viable candidate.
Apple’s China play leaves room for upside
It could also be possible that demand for the iPhone 5 is gradually slowing down but considering that pre-orders for the phone doubled previous year’s launch day record, that doesn’t seem to be the case. That said, most of the discussion above is purely conjecture for now, with more clarity expected only during Apple’s next earnings call. But what is clear is that Apple is looking to make this launch the fastest ever rollout in iPhone history and tap the largely unexplored emerging markets to keep the upside potential intact.
China, for example, holds a lot of promise for Apple considering the huge 2G subscriber base that the carriers there are trying to transition to 3G (3G penetration is currently only about 18% in China and growing at a good rate). Apple plans on bringing the iPhone 5 to China Unicom before the year-end. A deal with China Mobile, the largest carrier in the world by subscriber base, also looks likely now that Apple has used Qualcomm’s MDM9615 chipset in the iPhone 5 for LTE, which co-incidentally also has TD-SCDMA support. This could instantly double iPhone’s addressable market in China and act as the next big boost to its stock, considering that the iPhone accounts for more than 55% of the company’s value by our estimates. (see China Mobile In Talks To Offer The iPhone; Can Alone Take Apple Past $800)Notes: