iPhone sales may not meet some forecasts

Apple shares fell the most in six months after analysts said demand may be slowing for the iPhone, which Chief Executive Officer Steve Jobs expects to become the company's third major business.

Piper Jaffray & Co. technology analyst Gene Munster, whose June 2004 recommendation to buy Apple stock was followed by a 761 percent rally in the shares, said iPhone sales may be a disappointment to some. While Apple probably sold about 200,000 iPhones in its first two days, it may have missed some analysts' estimates of up to 500,000, according to Munster, who said Apple sales met his expectations.

Early acceptance of the iPhone, a combination iPod media player and mobile phone, is crucial to Apple's strategy to crack the mobile-phone market, which is almost four times bigger than the PC market. If iPhone demand falters, Jobs may have difficulty achieving his goal of making the device a third major business after Macintosh computers and iPod music players.

AT&T, the sole service provider for the iPhone, said Tuesday that it activated 146,000 of the phones in the first two days of the sales agreement. Apple introduced the iPhone, its first mobile device, in the U.S. on June 29.

Shares of Cupertino, Calif.-based Apple fell $8.81, or 6.1 percent, to $134.89 Tuesday, the steepest decline since Jan. 18.

Apple spokesman Steve Dowling said the company has no comment on iPhone shipments until Apple reports earnings today.

AT&T reported Tuesday that its earnings jumped 61 percent in the second quarter, driven mostly by its acquisition of BellSouth but also boosted by new wireless subscribers and better sales to large business customers.

For the quarter that ended June 30, AT&T said net income rose to $2.9 billion, or 47 cents per share, from $1.81 billion, or 46 cents per share in the prior year's quarter. Wireless subscribers rose by 1.5 million to 63.7 million, the company said.

A tiny amount of that growth was driven by the iPhone introduction, with more than 40 percent of the early iPhone activations done by new AT&T subscribers. Sales continue to be strong this month, the company said.

"We're elated with the iPhone launch," said Chief Financial Officer Rick Lindner in an interview Tuesday

UBS, a financial firm, said iPhone sales for the two-day period were "likely much higher" than the number of activations AT&T reported and that investors should "not overreact."

Delays in online ordering, limited supplies at AT&T retail stores and buyers who re-sold the devices likely delayed iPhone activations until this month, analyst Benjamin Reitzes wrote.

The New York-based analyst maintained his "buy" rating on Apple, which he has held since 2004, and his $160 share-price forecast.

Mark Mowrey, an analyst at Al Frank Asset Management in Laguna Beach, Calif., said, "There's such great expectation built into the stock now because of its valuation that a miss, if the iPhone numbers come in light, it's going to weaken that premium mentality investors have for Apple shares."

Al Frank Asset Management owns about 38,500 Apple shares.

Analysts expect Apple to say third-quarter profit, before some items, was 72 cents a share, the average of 23 estimates in a Bloomberg News survey.

Piper Jaffray's Munster said that the number of activations doesn't change his outlook that the iPhone will be the next "major driver" for Apple's growth.

Some say Apple's iPhone sales couldn't meet investor expectations because some analysts kept increasing their estimates.

"This is a disappointment relative to Street thinking, which crept up from 200k to 500k, or more, in the first two days," Munster, a Minneapolis-based analyst, wrote. He kept his "outperform" rating and $205 share-price forecast for Apple shares.

CIBC World Markets said demand for the iPhone has had a "significant decline" in the past 10 days and that Apple and AT&T may try to boost demand by increasing their marketing efforts.

"We have noticed decent inventories at stores, and thin demand at best," analyst Ittai Kidron wrote in a note. "Among the stores we visited, most visitors were not looking at the device, and only a very small subset bought it."

Apple may introduce in November a U.S. version of the phone that runs on the faster 3G wireless network, Kidron wrote. A CIBC survey of iPhone users showed that the device's "key shortcoming" is its "poor data connectivity."

Bloomberg reporters Cesca Antonelli and Connie Guglielmo in San Francisco and Crayton Harrison in Dallas contributed to this report. Information from The Associated Press is also included.