Parks Associates Blog

Tuesday, July 24, 2007

The iPhone Did OK, Just OK

You heard it right. The iPhone did ok, just ok.

Despite AT&T's spetacular quarterly numbers (beating analyst consensus by 3 cents per share in profit), its stock price did not bulge this morning. Elsewhere, Apple's stock price declined by 3% in early tradings. AT&T's good news was offset by its release of iPhone activation numbers. The company announced that during the launching weekend, it activated 146,000 iPhones. This number is far smaller than estimates published by various financial analysts, ranging from 300,000 to 500,000. It's not clear whether AT&T's activation disasters have lead to the discrepancy, since those estimates are about retail sell-throughs, not activations. Even considering this factor, we believe the iPhone has not met the expectations of many financial analysts. Parks Associates, on the other hand, maintains a rather realistic opinion about the iPhone, as detailed in this whitepaper. The iPhone, due to the high price point and technological shortcomings, will face numerous challenges. Don't take me wrong, I've played with it and it's a beautiful device, but as a savvy consumer, I'm not ready to empty wallet for it, not yet.

In a newly published multiclient study (press release here), Mobile Entertainment Platforms and Services (Second Edition), we wrote the following;

Facing a saturated market and increased competition, mobile carriers are trying to differentiate from each other through various means, including mobile entertainment offerings and exclusive handsets. However, on a fundamental level, good network coverage and high voice quality are still the top considerations for all consumers. Only when these two requirements are met will they consider other differentiators. In the U.S. market, exclusive handsets, mobile entertainment services, and convergence offerings (such as remote DVR programming) provide further differentiation only when the targeted audience is “mobile aficionados;” other segments do not care much about these factors. This fact poses a potential adoption barrier for the iPhone. “Mobile aficionados” are likely to be attracted to the phone, but they might be turned off by the slow network connection. On the other hand, for mass market consumers, Verizon’s advertisement of “It’s the Network” might resonate better than AT&T’s “Only We Have the iPhone” message.

The initial results have confirmed our analysis. A closer examination of AT&T's Q2 numbers reveals that the iPhone did make an impact to its quarterly subscriber growth, although nothing dramatic. It added 1.46 million new subs, compared to 1.26 million in Q1. I'm looking forward to Verizon Wireless' Q2 webcast on July 30, which will surely provides us with more insight.


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