Apple (AAPL): Further comments on the iPhone from Avian Securities

January 28, 2008 9:49 AM EST
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The Apple (NASDAQ: AAPL) iPhone call I told you about earlier is coming from Avian Securities' Tero Kuittinen. T-Mobile announced on Saturday that it has 70'000 iPhone customers after selling the phone for 11 weeks. This is well below expectations and seems to support Avian's view that Germany and France are notably weaker iPhone markets than the UK.

T-Mobile is a big operator - it had more than 34 million subscribers at the end of September 2007. It's worth noting that AT&T had roughly 63 million subscribers when it launched iPhone in late June 2007 - and activated 146'000 subscribers in less than 48 hours. Nobody expected German iPhone launch to match that performance - but considering T-Mobile has more than half of AT&T's mobile subscriber base, the 11 week performance is stunningly weak. France Telecom announced earlier that it sold more than 70'000 iPhones between November 28 and January 10. One of the things that makes the T-Mobile number seem so curious is the common assumption that German consumers have a particularly robust appetite for high-end models with fancy new features.

It took the British operator O2 until January to hit 200'000 activations of the iPhone - longer than most expected. Now operator partners of Apple in both France and Germany have come in below O2 - T-Mobile weakest of all.

This may in part reflect how tough the competition in the European high-end market is getting. Consumers are switching to 5 megapixel camera models in droves, Nokia is packing GPS support into its flagships and Koreans are introducing large touch displays into phones that are 20-30 grams lighter than iPhone. The Apple brand may not be strong enough outside North America to offset this feature gap.

Firm notes they expect the Italian and Spanish launches of iPhone to take place in March-May 2008. In light of the weakness in both Germany and France, the debuts may be even more disappointing - Samsung is launching its latest big-display phone in Feberuary and Sony Ericsson is widely expected to announce an iPhone look-a-like model for May or June debut. It's worth repeating that LG's KU990 has sold more than 550'000 units since its launch in Europe in November - Apple is now in danger of missing the boat in the nascent big-display handset market in Europe due to the weak feature profile of the first-generation iPhone.

As usual, Avian expects knock-on impact on RIMM from any disappointing iPhone news. RIMM's current Blackberry line in Europe and Asia is two steps behind the high-end competition when it comes to camera, display and miniaturization technologies. If the iPhone is having trouble with better-specced competition, it is reasonable to assume that in coming quarters RIMM may face similar headwinds - this is not a company that has ever demonstrated cutting-edge hardware features, opting to depend on software innovation instead. The high-end handset markets of Europe and Asia seem to be making a big leap in display and camera technologies while most models with advanced features are being squeezed close to 100 gram weight or below. This is a competition where smaller vendors with relatively slow handset product cycles like Apple and RIMM are obviously going to struggle.

Notablecalls: Excellent comments by Tero as usual. Yet, I must say it's probably too late to turn bearish on AAPL here.

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