July 25, 2008, 11:44 AM — With the iPhone 3G available in more than 20 countries, it's little surprise that Apple has announced that it sold a million phones in the first three days of the product's release--71 days faster than it took the original iPhone to reach the same number.
But those rapid sales have come at a cost: Apple's supply of the device appears to be stretched thin. Anybody who has passed an Apple Store recently has probably seen the lines of anxious customers stretching out the front door (or signs informing customers that yes, there are no iPhones today).
"We're thrilled with what we see," said Apple Chief Operating Officer Tim Cook during the company's third quarter financial results conference call last Monday. "There are a number of stock-outs," Cook said. "This is a factor of overwhelming demand."
Kevin O'Marah, chief strategist at AMR Research, which analyzes supply chains, agrees with Cook's assessment. "I don't know whether it's a specific component, but the root cause is tremendous demand." He adds, "[Apple] has done a really good job of building up the physical supply chain." AMR's 2008 report on the top twenty-five supply chains ranked Apple in the number one position, in large part because of its success in taking advantage of the digital supply chain--which ironically, O'Marah points out, was the part that broke down the most during the iPhone 3G's launch.
Since the device's launch, iPhones have seemingly been as scarce as four-leaf clovers. At various points in the past two weeks, several states in the U.S. have been completely out of stock, according to statistics compiled from Apple's own iPhone availability checker, which updates at 9 p.m. every evening with the status of all U.S. Apple Stores. And many stores reported having only one or two of the iPhone's three models in stock. AT&T's stores, which are the only other place to buy the iPhone 3G, have likewise been without enough phones. The stores received only a fraction of the stock of Apple Stores at launch, and the wireless provider has been encouraging customers to purchase using a "direct fulfillment" plan: customers pay up front, then return to collect their iPhones when they're in stock. A public statement on AT&T's Web site this week said the company is fulfilling those orders as fast as it gets iPhones in stock from Apple, which AT&T estimates to be an average of 13 to 14 days after purchase.
Piper Jaffray analyst Gene Munster recently told Computerworld that the shortage would likely last two to four weeks, due to the huge demand that Apple saw for the iPhone 3G at launch.
That's quite a contrast to last year's launch of the original iPhone. While the first-generation unit was immensely sought-after, and likewise resulted in long lines of customers, Apple Stores around the country seemed to have little trouble coping with the demand, and there were plenty of iPhones to go around (many people reported walking into Apple Stores the day after the launch and picking up iPhones with no lines and no fuss).
But that may have been the exception to the rule, says AMR Research's O'Marah. "What I speculate is
that they [Apple] were very careful not to stock out with first launch because they wanted to establish critical mass in the market. The next round, you start getting back to Apple's traditional way, which is slightly scarce."
At June 2008's Worldwide Developers Conference, Steve Jobs announced the company's intention to roll out the iPhone to 70 countries before the end of the year, and Apple executives have repeatedly reaffirmed their confidence that Apple will hit the self-imposed goal of selling 10 million iPhones in calendar year 2008. According to publically available figures, that number is around 3.42 million for the calendar year so far, with just over five months to go. But with iPhones apparently in such short supply, is such a goal still reachable?
"I'd think they need to ramp up their supply," says O'Marah. "I think stocking out on this stage is not as big a problem as with initial release."
In last Monday's conference call, several analysts brought up the issue of the iPhone's seemingly limited supply. When questioned about whether there was an issue with Apple's supply chain, Tim Cook said "I like what I'm seeing in the product ramp" and that Apple was shipping units as fast as it could to meet demand. In fact, the COO went on to say, the company is so confident in its production that it is planning to release the iPhone in 20 additional countries on August 22.
"If they can sell a lot in core markets, then going to Herculean lengths to sell in other countries is more a strategic or marketing move," says O'Marah. "It's more a matter of showmanship."
While the reasons behind Apple's short supply may remain a mystery, one thing is for sure: the scarcity has led the iPhone to become an extremely hot commodity on the resale market, with some being sold on eBay for more than $1,000. But the shortages have caused their share of frustration among would-be customers, too, leading to message board threads detailing the involved process of trying to figure out whether one will be able to get a phone at a given store or not.
"Excess demand is wonderful," says AMR Research's O'Marah, "as long as not it's too excess."