Apple 2.0

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Has Apple begun clearing iPhone 3G inventory?

March 27, 2009: 8:52 AM ET

iPhone with shadowStaffers at Apple's (AAPL) flagship Fifth Avenue store in New York City confirm that as of Thursday at 8 a.m., customers are now permitted to buy unlimited quantities of iPhones without an AT&T contract -- the very thing the company was working so hard to prevent in late 2007 when the devices were being snapped up in large quantities to be unlocked and re-sold in overseas markets. (See here.)

The new policy -- which applies to all U.S. Apple stores -- is similar to AT&T's (T) "no commit" pricing plan, revealed last week, whereby customers can buy iPhones without a contract at the full non-subsidized price of $599 for a 8G iPhone and $699 for a 16G model (compared with $199 and $299 with a contract).

AT&T's policy applies only to existing customers and limits them to one unsubsidized phone. Apple is imposing neither of those restrictions, leading some to speculate that the company has plenty of iPhones in stock and may be trying to clear inventory in advance of new models.

"Apple's change in sales policy," writes AppleInsider's Prince McLean, "comes as the company is working to sell off remaining inventory to prepare for the upcoming launch of the new 2009 iPhone, expected to be released around the middle of June, possibly at the company's similarly-timed Worldwide Developer Conference." (link)

The situation is reminiscent of spring 2008, when Apple began gearing up to produce the iPhone 3G. By April 1, there were spot shortages of first generation iPhones in Apple and AT&T stores across the country. Piper Jaffray's Gene Munster called 20 Apple stores that week and found no iPhones for sale at any of them. See Where did all the iPhones go?

Selling iPhones for more than double their usual price is an interesting way to clear inventory -- and may be preferable to unloading them for, say, $99 each. It's not clear how many customers will be interested, however. The phones are still locked to AT&T, and would have to be unlocked to work with any other carrier's service. The demand for unlocked iPhones was fierce before Apple began signing contracts with overseas carriers, but may not be as strong today.

These transitions are tricky for Apple. After selling 2.32 million iPhones in its first fiscal quarter of 2008 and 1.7 million the second, it sold fewer than 720,000 in the quarter that ended in June 2008. Sales took off with the release of the iPhone 3G, however. In fiscal Q4 2008, Apple sold 6.89 million iPhones.

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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