July 24 (Bloomberg) -- Apple Inc.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. analyst Gene Munster, whose June 2004 recommendation to buy Apple stock preceded a 761 percent rally in the shares, said iPhone sales may disappoint 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 combination iPod and mobile phone is crucial to Apple's strategy to crack the mobile-phone market, which is almost four times larger than the PC market. If demand falters, Jobs may fall short of his goal to make the device a third major business after Macintosh computers and iPods.

``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,'' said Mark Mowrey, an analyst at Al Frank Asset Management in Laguna Beach, California, which owns about 38,500 Apple shares.

AT&T Inc., the largest U.S. phone company and sole service provider for the iPhone, said in a statement today 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, California-based Apple fell $8.81, or 6.1 percent, to $134.89 at 4 p.m. in Nasdaq Stock Market composite trading, the steepest decline since Jan. 18.

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

Investors Overreact

UBS AG 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 July, 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.

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.

Bigger Sales

AT&T Chief Financial Officer Rick Lindner said in an interview today that Apple will report a larger number for second-quarter iPhone sales tomorrow, since some phones were sold but not activated.

Apple results will include sales of units they made to AT&T for distribution, almost all of which were sold out in the first few days except for a few used for demonstration purposes, he said. Technical problems caused delays for about 8,000 to 10,000 subscribers in the first weekend of sales, he said.

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.

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,'' the Minneapolis- based analyst wrote. He kept his ``outperform'' rating and $205 share-price forecast for Apple shares.

Slowing Demand

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.''

CIBC's Kidron also wrote that the iPhone, which he initially viewed as a negative for Research In Motion Ltd., the maker of the BlackBerry smartphone, may instead be a positive.

``The iPhone has significantly increased awareness for e- mail devices,'' Kidron wrote. That's ``positive mainly for RIM, the brand of choice for e-mail devices.''

Kidron, who is based in New York, rates Research In Motion at ``sector perform.'' He does not cover Apple.

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.''

Apple Performance

Before today, Apple stock was up 69 percent this year, compared with a 15 percent gain for the Standard and Poor's 500 Information Technology Index.

Call options to buy Apple shares at $140 by August were among the most actively traded U.S. options linked to a stock. The price of that contract fell 47 percent to $5.40. The price of August $115 puts doubled to $1.10.

Each call option gives investors the right to buy 100 Apple shares at a certain price, called the strike price, by a given date. A put conveys the right to sell 100 shares. Call volume and put volume were both above average, and calls out numbered puts by about 2-to-1.

There is ``decent volume in the puts and I'd say that's people protecting against bad news tomorrow when earnings come out,'' said Andrew Wilkinson, a senior market analyst at Interactive Brokers Group in Greenwich, Connecticut. ``People are bullish but you can't get away from the fact that they're taking cover ahead of earnings'' by buying puts.

San Antonio-based AT&T, which reported a 61 percent jump in second-quarter profit today, fell 35 cents to $39.68. IPhone sales helped increase wireless revenue by 13 percent and helped cut customer turnover to a record low.

Research In Motion, based in Waterloo, Ontario, declined $8.73, or 3.8 percent, to $221.

To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net

Last Updated: July 24, 2007 17:38 EDT