Why Apple Will Sell 10 Million IPhones

Every now and then, I read something that makes me fall off my chair in shock. In this case, the text in question is in a New York Times article, "The Guessing Game Has Begun on the Next iPhone" (hat tip to John Gruber for the link).

The Times story is largely what you'd expect: an attempt to discuss the anticipation about the next-generation iPhone we're all sure is coming next month, but about which there's precious little actual information. But its focus on Apple's repeatedly stated goal of selling 10 million iPhones during calendar-year 2008 steers it desperately off course and into crazyland:

After almost a year of strong sales... the iPhone has settled down to a less-than-spectacular pace: roughly 600,000 units a month, according to the company. Apple... sold just 1.7 million phones in the first three months of this year, meaning it must sell more than 8 million phones to reach Mr. Jobs's publicly stated goal of selling 10 million iPhones in 2008.

"They're going to have a difficult time" hitting that number, said Edward Snyder, an analyst at Charter Equity Research. He said that Nokia, the world's largest maker of cellphones, sells more phones every week than Apple has sold since the iPhone's introduction.

Here's the thing. I've stared at Apple's iPhone sales figures repeatedly over the last few months, and I can't see any reasonable way that the company can't sell 10 million phones this year.

First, let's take the idea that iPhone sales have "settled down." Yes, in the first three months of the year Apple claims to have sold 1.7 million phones, an average of 568,000 a month. However, in the months of July, August, and September of 2007--the first full quarter of the iPhone's availability--Apple sold 1.1 million iPhones. Which means, despite all of that iPhone launch hype and all the pent-up demand for the iPhone, sales between those two quarters grew by 52 percent.

In between those quarters was Apple's financial first quarter of 2008, a quarter known for its wild holiday sales figures for iPods. And last winter the iPhone proved to be a part of the holiday bump as well: Apple sold 2.3 million iPhones during the holiday season.

So let's run the numbers. Let's assume that iPhone sales will be up slightly between April and June of this year. I'll estimate 2 million phones sold, up roughly 18 percent from the previous quarter. That puts Apple at 3.7 million of its estimated 10 million phones sold for the year. Mark my words, when Apple reports its sales figures, a chorus of people will claim the company is nowhere near the pace required to meet its goals.

But let's move on. The third calendar quarter of 2008 will presumably see the release of a shiny new iPhone model as well as a boatload of new iPhone software, from Apple and from independent developers. It'll also presumably coincide with the rolling out of iPhones into numerous new international markets. As a result, I think it's safe to conclude that sales of iPhones in July, August, and September of 2008 will be strong. I'll pencil in a 25 percent sales boost to 2.5 million. That means with three months to go, Apple will have sold 6.2 million iPhones, still nearly 40 percent short of its goal. Sakes alive! They're not going to make it, are they?

Relax. Because next up is the first financial quarter of 2009, that massive holiday quarter Apple has each and every year. And I'm confident that the iPhone will once again benefit from a massive holiday sales spike, similar to the one the iPod receives each year. Last year, iPhone sales doubled in the holiday quarter. But let's be conservative and estimate that Apple will sell four million phones in that quarter.

There we are. In my back-of-the-envelope exercise, Apple sells 10.2 million iPhones in calendar year 2008. And I stress, these are extremely conservative numbers. If I had to place a bet, I'd probably say that Apple will sell more like 2.2 million phones in the current quarter, more like 3 million in the following quarter, and five million in the holiday quarter. That guess adds up to almost 12 million iPhones in calendar year 2008.

Let's not forget, Apple is not a company to make predictions lightly. And despite being bitten by one previous prediction regarding the speed of PowerPC chips -- a failure that precipitated Apple's move to Intel processors -- Apple still made this iPhone prediction. It made the prediction with full knowledge of its forthcoming iPhone models, international product roll-out, and traditional holiday-quarter sales surge.

Apple's supremely confident about selling 10 million iPhones this year. And you know what? I'm confident that it'll do it, too.

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