(Editor's Note: An earlier version of this story incorrectly reported that AT&T is the largest U.S. wireless carrier and that Apple's newest iPhone is lighter than the current version.)
A new gadget from Apple (AAPL) is typically cause for a sales jolt, but demand for the latest redesign of the company's popular iPhone has been off the charts. AT&T (T), the smartphone's U.S. carrier, suspended sales of the device on June 16 after more than 600,000 early orders strained company computers. Some calls to Apple's service line weren't answered because of heavy volume.
What accounts for such demand? Performance upgrades and a sleeker look, analysts say. The thinner, square-edged, flat-back design is the first cosmetic overhaul for the three-year-old smartphone. While speedier, the iPhone 4 will sport a 5-megapixel camera, videoconferencing capability, and an outerbody antenna that should improve call reliability—a common complaint among current iPhone customers.
"The phone is sleeker and thinner," says Adam Leach, principle analyst for Ovum, a London-based technology research firm. "The current model is starting to look a bit old."
With 50 million iPhone users, many orders are coming from fans who want to upgrade, says Charles Wolf, senior analyst for Needham & Co. He expects a large percentage of the iPhone 4's initial sales to be upgrades. As the phone expands into overseas markets, he says, Apple will see more first-time buyers. AT&T, the second-largest U.S. wireless carrier, also boosted sales by allowing any iPhone customer eligible for an upgrade in 2010 to buy the new phone at the lowest price—$199 for the 16GB model or $299 for the 32GB. That will lock iPhone customers into two-year contracts this summer, just as many analysts and others expect that Verizon Wireless will eventually become a carrier for the Apple device. "It's a smart move for AT&T," Wolf says.
Apple's iPhone seasonality
In a June 17 report, Morgan Stanley (MS) predicted that the number of iPhone users may surpass 100 million in 2011. "We see the iPhone installed base rising from approximately 30 million subscribers at the end of 2009, to over 100 million by the end of 2011," analyst Katy Huberty wrote. "Upgrades will emerge as a key demand driver in the coming years."
Since Apple typically unveils iPhone enhancements annually, usually in the summer, many people decided they don't want to wait any longer. "Customers are thinking, 'I'm going to have to wait another year,'" said Francis Sideco, an analyst with iSuppli, in El Segundo, Calif. "'I might as well get it.'" Beyond the tech specs and new case, some of the demand is coming from Apple's hardcore aficionados, those who always buy the latest gadget from the world's largest technology company, Sideco says. While this group's size is hard to estimate, Sideco said these loyal customers represent a small but reliable sales base.
Peter Petrassi, one such "Applephile," owns an iPhone 3GS but is eager for the upgrade. The 40-year-old subway conductor from Queens, N.Y., bought his new smartphone at an Apple Store in Long Island. He wanted the upgraded phone for its multitasking features. Petrassi, an avid sports and New York Yankees fan, has five sports apps and the new iPhone 4 will allow users to group similar apps in categories. "Now, I don't have to have pages and pages of apps," he said.
Even non-Applephiles are being lured by new software, said Carolina Milanesi, research vice-president for mobile devices for Gartner research. The new iBook app allows customers to buy books through Apple's iTunes store. Customers buy the book once and can synch it with an iPod Touch, iPad, and their computer, she said.
The phones will be available on June 24. Says Wolf: "I expect the store to be wild."