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Apple (Nasdaq: AAPL) shares fell US$12.22 to close at $256.08 in volatile trading Tuesday as the overall market took a grand beating. But don't break out the oxygen masks yet, folks; that figure's still higher than the company's closing prices up to May 28, as well as a few days in June.
Wall Street slumped Tuesday due in part to China's move to revise its leading economic indicators for April downward, as well as new fears regarding a liquidity shortfall in the European financial system.
However, these factors don't seem to be affecting iPhone sales -- as you could probably tell if you passed by an Apple store last Thursday, demand for the device is strong both in the United States and abroad.
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Apple has claimed it sold over 1.7 million iPhone 4s in the first three days the device was on sale, and customer demand has been overwhelming, forcing AT&T (NYSE: T) to stop taking iPhone 4 preorders altogether and push back the day it would sell the iPhone 4 in its stores to June 29. Many of its stores reportedly were sold out of the device shortly after opening their doors.
Apple, too, is suffering from shortfalls. Two weeks ago, just halfway through the first day of iPhone 4 presales, the company began gradually moving back its promised delivery date for new orders. Early birds got their phones on June 24, but orders placed Tuesday, for example, will not ship until July 20.
The iPhone will hit several new international markets soon, and sales there are expected to be strong as well. International sales will account for about 80 percent of iPhone sales in calendar 2010, Brian Marshall, an analyst at Gleacher, believes.
The iPhone will remain the "single most important driver of Apple shares" this year, Marshall contends. He expects Apple to sell 40 million iPhones this year and 50 million in 2010.
Marshall has raised his price target on Apple shares from $340 to $355.
Apple, he expects, will gain further strength on the income of new revenue channels like iAds, the company's mobile advertising platform, as well as content and media purchases on the iPad.
This bodes well for investors, who may be wondering whether or not they should hang on to AAPL.
Loyalty Is a Virtue
Existing iPhone owners upgrading to the iPhone 4 accounted for 77 percent of the device's first-day sales, according to analyst firm Piper Jaffray.
Could potential new customers be lost because they're being lured away by the sharp new Android smartphones out there? The HTC EVO, which runs Android 2.1, gave Sprint (NYSE: S) its best one-day sales ever, and Motorola (NYSE: MOT) debuted the new Droid X for Verizon a day prior to the iPhone's launch. Further, Samsung will hit the market with a whole set of new Android smartphones soon.
Finally, Google (Nasdaq: GOOG) has begun pushing out Android 2.2, also known as "Froyo," to users of its Nexus One smartphones, and the new operating system is expected to be available on smartphones from other manufacturers within a few months.
Demand for Android smartphones, combined with user concern over spotty wireless reception from AT&T, could be a problem for Apple.
"In the U.S., the wide availability of Android smartphones from competing carriers will limit the number of subscribers that switch to AT&T for the iPhone 4," Chris Hazelton, a research director at the 451 Group, told MacNewsWorld.
However, the high percentage of upgrades by existing owners is not a problem.
"The handset replacement cycle is about two years, so it's to be expected that many iPhone 3GS and even iPhone 3G users upgraded to the iPhone 4," Gleacher's Marshall explained.
The chance to get hold of that captive upgrade market may have played a part in AT&T's decision to offer iPhone owners whose contracts still had up to six months left the chance to get an iPhone 4 at the standard $199/$299 price immediately.
"My belief is that AT&T negotiated a six-month extension on its iPhone exclusive contract in the U.S., which was originally set to expire in June, because it wanted to reap the benefit of all the upgrades," Gleacher's Marshall said, warning that this is only speculation on his part.
Don't Have a Cow, Man
The iPhone shortfall is likely due to supply problems -- production line issues have reportedly led LG Display, which makes the iPhone 4's Retina Display screen, to turn out only about half the 4 million iPhone 4s expected.
The shortfall could turn potential customers away, but that problem will be resolved soon, Gleacher's Marshall said.
"In the September quarter, I think we'll see supplies increase," he said. Marshall expects iPhone sales to grow 23 percent in the coming quarter to total 10.75 million units in the September quarter. He raised his revenue estimates for calendar 2010 from $64.5 billion to $65.8 billion, and for calendar 2011 from $72.7 billion to $74 billion.
"I'm being conservative with these figures," Marshall added.
In addition, Bloomberg reported Tuesday that Verizon will have its own CDMA version of the iPhone in January. That will likely be a hit, if sales of the iPhone 4 are any indication.
So hold on tight to your AAPL shares, folks, they're likely to continue paying off.
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