Actually, calling the new iPhone a cell phone does it a serious disservice. It can be more accurately described as a touch-screen activated device that combines Internet, telephone and iPod-like music and video play. The iPhone is sold at Apple and AT&T stores and at Apple’s online store.

Art Berman
Insight Media Consultant

At its début between last Friday and Sunday evenings, there were, apparently, a ton of iPhones sold. This flexible unit of measure comes out to about 500,000 devices according to a Piper Jaffray analysis. If that news was not good enough, it seems that just about everyone that bought an iPhone (at least in a survey of several major cities) purchased the more expensive 8GB model.

And….Apple is not the only big winner. AT&T has a 5-year exclusive contract with Apple to provide network services in the US. Close to 50% of iPhone buyers were new customers for AT&T. This gives credence to a Bear Stearns’ report that claims that the US mobile operator will gain close to 1M new subscriptions by the end of 2007 from the iPhone.

Nearly all of AT&T’s 1,800 stores were sold out, but there are reportedly 3M iPhones already in the pipeline for delivery to customers, and these new stocks were en route, said AT&T spokesman Mark Siegel. They may well be needed. Piper Jaffray’s market research suggests that between 6% and 9% of US consumers intend to buy an iPhone. Once there is more information on the level of satisfaction of buyers with their new phone, crystal balls will clear up and it will be easier to judge the future success of the iPhone.

There were, perhaps not unexpectedly, some problems associated with the start up of the service. The rush of people activating their iPhones online during the weekend flooded AT&T computers, causing delays in a small fraction of cases, according to Siegel. "We think all those problems are behind us," Siegel said. "The overwhelming number of customers went home, onto their iTunes website and were off and running in a matter of minutes the way it was intended." Let us hope so. If there are significant and continued problem and consumers express dissatisfaction with the expensive phone, it is possible that sales may slow down. Perhaps of more significance, some consumers were already complaining about the speed of the Internet access on AT&T’s EDGE network.

Research firm iSuppli dismantled a $599, 8GB iPhone and estimated that the parts in it cost about $266. The parts in the $499, 4GB version cost about $246. These figures suggest a profit margin of about 55%, an amount even larger than the estimated 40 to 50% Apple makes off each iPod MP3 players.

The most expensive part of the phone is the touch screen display, produced by German firm Balda for around $60 each. Apparently, the main microprocessor chip and NAND flash memory are produced by Samsung and then stamped with the Apple logo.

It is estimated that the iPhone generated revenues of close to $300M over the weekend and earned Apple a profit between $50M and $150M. With results and press like this, it is not surprising that Apple’s shares on the New York Stock Exchange soared to a record high. On Tuesday, shares climbed nearly 5% to a close of $127.17.

Now, a quick look at the darker side of the iPhone story. Hackers may have successfully unlocked the iPhone in just a few days, which means that users will be able to operate the handset with other service providers, not just AT&T.

Blogs on the Internet are full of claims and commentary. Some may well be true. Apparently, by Tuesday night, hackers had succeeded in cracking the iPhone’s activation process, a minor step but a significant technical challenge. Cracking the activation process brings hackers one step closer to their goal of unlocking the iPhone, a challenge that is expected to be easier than cracking the activation process. A rumored software update for the iPhone, expected for released on July 5, could undo some of the progress hackers made towards unlocking the phone.

Hacking aside, it is not expected that these attacks will do much damage to the iPhone’s chances for success, or even to AT&T’s contracts. Although hackers may well figure out how to port the iPhone to another service, most will likely continue to use AT&T.

Bottom line here is that Apple seems to have done it again. The iPhone is a super product and I want one!