Apple Poised to Sell 10 Million IPhones in Record Debut

Story by Bloomberg
Written by Adam Satariano and Ryan Faughnder

Apple Inc. is poised for a record iPhone 5 debut and may not be able to keep up with demand as customers line up from Sydney to New York to pick up the latest model of its top-selling product.

The iPhone 5 hits stores in eight countries today at 8 a.m. local time, giving customers in Australia the first chance to buy the device, followed by those in Japan, Hong Kong, Singapore, France, Germany, the U.K., Canada and the U.S. With a new wireless contract, the device costs $199, $299 and $399 in the U.S., depending on the amount of memory.

Pedro Mendez, a 21-year-old student from Elmhurst, New York, got in line at Apple’s flagship store on Fifth Avenue in New York on Sept. 18 to make sure he’d get the new phone.

“It’s something you have to do,” said Mendez, who plans to sell his iPhone 4S to a friend. “You stand in line, you see everyone the next day at school and talk about it.”

The crowds reinforce estimates from analysts that the iPhone 5 will be the largest consumer-electronics debut in history. Apple may sell as many as 10 million iPhones during the weekend sales rush, according to Gene Munster, an analyst at Piper Jaffray Cos. Because Apple generates about two-thirds of its profit from the iPhone, a successful introduction is critical to fuel growth that has led investors to catapult Cupertino, California-based Apple to the world’s most valuable company.

‘Cool Kids’

“We’ve never seen anything like this before,” said Andrew McAfee, principal research scientist at Massachusetts Institute of Technology’s Center for Digital Business. “It used to be that with tech products the nerds got them, obsessed about them, and talked about them, and the cool kids wanted no part of that conversation. That’s just not true anymore.”

Apple may have trouble keeping up with initial demand because of supply shortages of components such as in-cell screen displays, according to Barclays Plc. Already, the company had to push out some deliveries to October after early online purchases topped 2 million in 24 hours, double the record set last year with the iPhone 4S.

Apple is introducing the iPhone across the world faster than any of the device’s five previous debuts. The iPhone will go on sale in 22 more countries on Sept. 28, Apple said, and it will be in more than 100 countries by the end of the year.

Bigger Screen

The new iPhone has a bigger screen, lightweight body design and faster microprocessor, and is compatible with speedier wireless networks. Software upgrades include new mapping and turn-by-turn navigation features.

Technology gadget reviewers mostly praised the new device, especially for its swifter wireless speeds that improve Web browsing and other data-hungry tasks. One criticism was the new mapping features, which don’t include details on how to navigate public transportation.

On Sept. 19, two days before the introduction, about 17 people were lined up at Apple’s Fifth Avenue store.

The lines around the world show how customers remain loyal to Apple once they buy one of its products, said Giri Cherukuri, a portfolio manager for Oakbrook Investments LLC, which owns Apple shares.
“The longer people are in the Apple ecosystem, the harder it is for them to switch away,” he said.

Android Competition

Apple is vying with rivals including Samsung Electronics Co., HTC Corp. and Google Inc.’s Motorola Mobility for dominance in a global smartphone market that reached $219.1 billion last year, according to data compiled by Bloomberg Industries. Those manufacturers primarily use Google’s Android operating system, which is the world’s most popular mobile software. Microsoft Corp., which has been working closely with Nokia Ovi, also is introducing a new mobile version of Windows later this year.
The benefits of a successful iPhone debut extend beyond Apple.

Suppliers including Qualcomm Inc. (QCOM), Broadcom Corp. (BRCM), LG Display (034220) and Hon Hai Precision Industry Co. (2317), the owner of Foxconn Technology Co. (2354), also will see a gain, according to Barclays.

To take advantage of the iPhone’s popularity, some of the first to get in line were there for the publicity. Joseph Cruz, 19, said Gazelle.com offered to pay for his iPhone, along with four others in line in New York, if he agreed to wear the company’s t-shirts and wrist bands.

“I’ve just got to wear this stuff for the whole week and they’ll pay for my iPhone,” he said. “I was going to stand out here regardless.”