Apple breaks iPhone sales record again

But iPad 2 suffering from 'mother of all backlogs', says exec

Apple today said it sold a record 18.6 million iPhones in the first three months of 2011, the third consecutive quarter the company's smartphone has set sales records.

Apple posted record revenues of $24.7 billion for the quarter — also the third quarter running that it's broken the $20 billion mark — which represented an 83 per cent increase over the same period last year.

Profits were just shy of the $6 billion Apple recorded last quarter, but 95 per cent higher than the first quarter in 2010.

Executives boasted that the firm generated the highest revenues for a January-to-March quarter in company history.

"It was really solid across the board," said Brian Marshall, an analyst with Gleacher & Co.

The highlight, Marshall said, was obviously the iPhone, which contributed nearly 50 per cent of Apple's total revenues for the quarter, the largest slice ever for the smartphone.

"iPhone sales were a hair's breath from making Apple a phone company," said Ezra Gottheil of Technology Business Research, referring to the smartphone's revenue impact. "But that's the adoption curve on new technology. The iPhone is screaming out of there, and it's a heck of a business, and will be for at least the next year or two."

Apple sold a record 18.6 million iPhones, up 113 per cent over the same period last year and a 15 per cent increase over the final quarter of 2010, which was the previous record. On a revenue basis, the iPhone's contribution was 49.9 per cent of total revenues, two-and-a-half times that of the Mac or more than four times that of the iPad.

Marshall expressed disappointment in iPad sales, which sold 4.7 million units, a 36 per cent drop from the prior period and well off his projection of 5.3 million. Most other analysts had forecast even larger sales for the tablet, with some predicting as many as 8 million would be sold.

"Clearly, demand for the iPad 2 was much greater than Apple expected," said Marshall, talking about the continued problems the company has had meeting demand.

Apple declined to separately report sales numbers for the new iPad 2, which launched last month, but CFO Peter Oppenheimer claimed that Apple could have sold more if it had them. "We sold every iPad 2 we could make," he said.

Later, Apple COO Tim Cook called the iPad 2 demand "staggering," and said that orders were bogged down in the "mother of all backlogs."

Currently, the lag time between ordering and shipping is between one and two weeks on Apple's Web site.

Cook said that the company was working hard on matching supply with demand, but refused to predict when Apple would be able to make enough tablets. "I'm confident that we'll build a large number of iPads this quarter, but when we will match demand, I don't know," Cook said.

Marshall's betting that Apple will solve the supply problem quickly, perhaps as early as the current quarter, which ends June 30.

During the Q&A section of the call, Cook was asked why Apple — which sold 7.3 million first-generation tablets in the last three months of 2010 -- couldn't meet demand for the iPad 2. Was it a forecasting error, an analyst asked.

"Product transitions are never simple," Cook answered. "And remember, we have to call [manufacturing numbers] many many weeks in advance."

Marshall bought that explanation. "I do think it was the transition," he said. "The iPad 2 is 33 per cent lighter and 15 per cent thinner. It's not that easy to build them."

Gottheil also didn't believe Apple made a error in forecasting. "Anytime there are people still queued up for a new product, I can't see how you screwed up," Gottheil said.

Also important to remember, said Gottheil, is that while Apple has several years of experience in predicting iPhone sales — and matching that with production — it has only one year with the iPad.

"I'd argue that Apple did customers a favor by telling them, 'Oh, by the way there's a hot new one out soon,'" Gottheil said, talking about Apple's February announcement that it would start shipping the iPad 2 the following month.

Apple sold 3.8 million Macs, off last quarter's 4.1 million but 28 per cent more than the same quarter in 2010. This was the first quarter in the last six that Apple did not set a new Mac sales record, but the 20th consecutive quarter it beat the computer industry average growth rate.

Last week, IDC and Gartner estimated that global industry sales contracted by 3.2 per cent and 1.1 per cent, respectively.

"The Mac is kicking butt in the PC world," Gottheil said.

Oppenheimer credited continued strong sales of the MacBook Air, which debuted in 2010, and renewed sales of the MacBook Pro line — the latter was refreshed last February — for the boost to Mac numbers.

Apple racked up 2.8 million notebook sales, an increase of 53 per cent over than the same quarter of 2010, but down five per cent from the even stronger final and holiday-oriented fourth quarter of last year.

Desktop sales were off 12 per cent from the same period last year, a much steeper decline than 2010's final quarter, when the fall-off was just one per cent.

CEO Steve Jobs, who remains on an indefinite medical leave that started in January, did not participate in today's call. But Oppenheimer stepped in to knock Android, Google's mobile operating system, a task that Jobs has taken on in the past.

"Users appreciate that Apple can take full responsibility [for the platform]," said Oppenheimer after criticizing the "fragmentation" of Android, a term Apple uses to describe the multiple versions of the OS on handsets from multiple manufacturers. "Android turns customers into system integrators, and there are few customers I know who want to be a system integrator."

"Someone did some brainstorming to come up with that one," Gottheil said.

"But Apple has reason to be concerned about Android," Gottheil continued. "Google is working quickly to ameliorate early problems with Android. Apple will not dominate the smartphone market alone, but its end-to-end coverage is going to appeal to a large part of the market."

Apple also took questions about its recent lawsuit against Samsung, a long-time supplier of components for the iPhone, as well as the newer iPad 2.

The two companies squared off last Friday when Apple filed a lawsuit in a U.S. federal court, charging Samsung with 10 counts of patent infringement, two of trademark violation and two of trade dress violations for allegedly copying the iPhone, iPad and iPod Touch to make its Galaxy Tab and Galaxy smartphones.

"We are Samsung's largest customer," Cook said. "But they crossed the line."

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer or subscribe to Gregg's RSS feed . His e-mail address is

Read more about smartphones in Computerworld's Smartphones Topic Center.

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