July 14 (Bloomberg) -- Apple Inc. may have sold as many as 425,000 of its new iPhones in the first three days after the handset made its debut, in line with projections even after a technical breakdown.

Apple and partner AT&T Inc. sold a combined 225,000 devices in the U.S., though a failure in Apple's system meant some buyers had to finish the activation at home, said Piper Jaffray & Co. analyst Gene Munster. The numbers matched his estimate, said Munster, who predicts Apple will sell 4.08 million this quarter.

``We thought it was going to be less because of the activation problems on the first day, but what we found is that virtually every store had a line and many stores were sold out,'' Munster said in an interview. ``The summary is that demand is good, execution was average.''

Carriers in the U.K., Germany, Canada and Japan said many shops ran out of the iPhone 3G, which works with speedier third- generation wireless networks, on the first day. AT&T, Apple's exclusive U.S. partner, said most of its 2,000 stores were out of supplies and it expected new inventory within days. Half of Apple's 187 U.S. retail outlets were sold out as of last night.

Piper Jaffray's estimate assumes that AT&T, the largest phone company in the U.S., sold 50 iPhones at each of its stores, he said. A breakdown with Apple's iTunes service had some customers leaving stores without a working phone.

``It was a lot more painful process than anyone anticipated,'' said Munster, who recommends buying Apple shares. ``People don't seem that discouraged by the process because there were lines everywhere even after the first day.''

New York

At Apple's New York store on Fifth Avenue, the only one of its outlets that is open 24 hours a day, seven days a week, there were at least 400 people in line yesterday waiting to buy the handset, Munster said.

Apple ran out of iPhones in 95 stores, based on an online inventory tally posted on the company's Web site last night. That includes outlets in San Jose, California; Albany, New York; Cherry Hill, New Jersey; Madison, Wisconsin; and Knoxville, Tennessee. All of the company's shops in Alabama, Connecticut, Indiana, Iowa, Kentucky, Louisiana, Nebraska, New Mexico, Ohio, Rhode Island and Wisconsin had no supplies left.

Apple and AT&T said last week they expected the activation process would take 15 minutes or less. Both companies demanded customers pick a two-year service plan at the time of purchase, a move designed to prevent buyers from reselling the phone or unlocking it to work on unauthorized wireless networks.

Widen Business

Apple is seeking to widen its business beyond iPod media players and Macintosh computers, which accounted last year for 78 percent of sales. Chief Executive Officer Steve Jobs said he wants to sell 10 million iPhones this year to capture a 1 percent share of the worldwide phone market.

The phone was the second-biggest-selling smart phone in the U.S. in the first quarter, behind Research In Motion Ltd.'s BlackBerry, according to researcher IDC in Framingham, Massachusetts. Smart phones combine Internet and computer functions in a device that allow users to access e-mail and surf the Web.

Apple fell $4.05 to $172.58 July 11 in Nasdaq Stock Market trading. The stock rose the equivalent of $3.42 in Frankfurt trading to $176 as of 12:57 p.m. Dallas-based AT&T dropped 19 cents to $32.58 on July 11.

The new 3G model, available in black and white, sells for as little as $199 in the U.S. Shoppers seem to prefer the black, 16- gigabyte model, which sells for $299, based on the inventory tally at each of Apple's stores in 38 states.

International Sales

After the original iPhone was released in June 2007 in the U.S, Apple sold 270,000 in the first two days. The iPhone 3G debut may disappoint some investors who were looking for higher sales with the broader international distribution, Munster said.

In the U.K., retailer Carphone Warehouse Group Plc and Telefonica SA's O2 said on their Web sites today they were out of stock of the handset.

``We are experiencing unprecedented demand for the device,'' O2 said on its Web site. The wireless provider said it was confident that customers who want an iPhone ``will get one by the end of the summer.''

TeliaSonera AB is out of stock of the 16 gigabit model at some of its shops in Sweden, according to spokesman Jan Sjoeberg. He said the company is ``very pleased'' with how sales are going.

The first shipment in the Netherlands sold out on Saturday, Henny van der Heiden, spokesman at T-Mobile's Dutch unit, said, declining to say how big that consignment was. The company will receive new shipments every week, he said, adding that it had more than 70,000 requests for information about the iPhone.

Apple spokeswoman Bethan Lloyd in the U.K. didn't return a voice mail message seeking comment.

To contact the reporter on this story: Connie Guglielmo in San Francisco at cguglielmo1@bloomberg.net

Last Updated: July 14, 2008 08:05 EDT