Apple Stumbles on iPhone Figures; Demand Cools for Latest Gizmo

By JEFF KEARNS, BLOOMBERG NEWS

Apple Inc. shares fell the most in six months after analysts said demand may be slowing for the iPhone, which Chief Executive Officer Steve Jobs expects to become the company’s third major business.

Piper Jaffray & Co. analyst Gene Munster, whose June 2004 recommendation to buy Apple stock preceded a 761 percent rally in the shares, said iPhone sales may disappoint some. While Apple probably sold about 200,000 iPhones in its first two days, it may have missed some analysts’ estimates of up to 500,000, according to Munster, who said Apple sales met his expectations.

Early acceptance of the combination iPod and mobile phone is crucial to Apple’s strategy to crack the mobile-phone market, which is almost four times larger than the PC market. If demand falters, Jobs may fall short of his goal to make the device a third major business after Macintosh computers and iPods.

"There’s such great expectation built into the stock now because of its valuation that a miss, if the iPhone numbers come in light, it’s going to weaken that premium mentality investors have for Apple shares," said Mark Mowrey, an analyst at Al Frank Asset Management in Laguna Beach, Calif., which owns about 38,500 Apple shares.

AT&T Inc., the largest U.S. phone company and sole service provider for the iPhone, said in a statement Tuesday that it activated 146,000 of the phones in the first two days of the sales agreement. Apple introduced the iPhone, its first mobile device, in the U.S. on June 29.

Shares of Cupertino, Calif.-based Apple fell $8.81, or 6.1 percent, to $134.89 Tuesday in Nasdaq Stock Market composite trading, the steepest decline since Jan. 18.

Apple spokesman Steve Dowling said the company has no comment on iPhone shipments until Apple reports earnings today.

UBS AG said iPhone sales for the two-day period were "likely much higher" than the number of activations AT&T reported and that investors should "not overreact."

Delays in online ordering, limited supplies at AT&T retail stores and buyers who resold the devices likely delayed iPhone activations until July, analyst Benjamin Reitzes wrote. The New York-based analyst maintained his "buy" rating on Apple, which he has held since 2004, and his $160 share-price forecast.

Analysts expect Apple to say third-quarter profit, before some items, was 72 cents a share, the average of 23 estimates in a Bloomberg News survey.

AT&T Chief Financial Officer Rick Lindner said in an interview Tuesday that Apple will report a larger number for second-quarter iPhone sales today, since some phones were sold but not activated.

Apple results will include sales of units they made to AT&T for distribution, almost all of which were sold out in the first few days except for a few used for demonstration purposes, he said. Technical problems caused delays for about 8,000 to 10,000 subscribers in the first weekend of sales, he said.

Piper Jaffray’s Munster said that the number of activations doesn’t change his outlook that the iPhone will be the next "major driver" for Apple’s growth.

Apple’s iPhone sales couldn’t meet investor expectations because some analysts kept increasing their estimates. "This is a disappointment relative to [Wall] Street thinking, which crept up from [200,000] to [500,000], or more, in the first two days," the Minneapolis-based analyst wrote. He kept his "outperform" rating and $205 share-price forecast for Apple shares.

CIBC World Markets said demand for the iPhone has had a "significant decline" in the past 10 days and that Apple and AT&T may try to boost demand by increasing their marketing efforts.

"We have noticed decent inventories at stores, and thin demand at best," analyst Ittai Kidron wrote in a note. "Among the stores we visited, most visitors were not looking at the device, and only a very small subset bought it."

Apple may introduce in November a U.S. version of the phone that runs on the faster 3G wireless network, Kidron wrote. A CIBC survey of iPhone users showed that the device’s "key shortcoming" is its "poor data connectivity."

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