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Monday, February 25, 2008, 08:00 am PT (11:00 am ET)

RIM sees no slowdown as analyst questions 10M iPhone target

Apple's goal of selling 10 million iPhones in 2008 is being tossed under the microscope just as Blackberry maker Research in Motion (RIM) announced that its smart phone business has remained uncharacteristically strong through the start of the new year.

Speaking to clients in a research report on Friday, Bernstein Research analyst Toni Sacconaghi called Apple's self-imposed 10 million iPhone sales target "optimistic," especially if the company insists on maintaining carrier revenue share agreements without a significant price cut or new model introductions.

The analyst noted that iPhone sales averaged 180,000 units a week in the fourth calendar quarter of 2007, which stands as Apple's busiest period of the year. As such, he estimates to company will sell just 7.9 million units during the course of the year, given no change to its strategy.

"While we believe the iPhone has the potential to drive material earnings growth for Apple, recent data points suggest the business is facing two significant challenges: (1) overall demand for the handset appears to be falling short of expectations; and (2) the incidence of 'unlocking' has been much higher than expected," Sacconaghi wrote.

The Bernstein analyst was referring to recent reports that Apple has scaled back first calendar quarter iPhone production, and that unlocked versions of the handset may comprise 25 percent or more of the company's total shipments.

Should Apple hit its 10 million iPhone sales target, the number of unlocked devices would cause the company to forego between $1.1 billion and $1.3 billion in deferred subscriber revenues over two years, he added.

Meanwhile, RIM said Monday that it, unlike Apple, has not witnessed a decrease in subscriber growth since the start of the new year, as it had originally projected. Instead, the Blackberry maker now expects fourth-quarter subscriber additions to be approximately 15 - 20 percent higher than the 1.82 million it forecasted in December.

"BlackBerry smartphones proved to be a big hit throughout the holiday selling season and we’re pleased to see RIMM’s business momentum continuing in the new year," said co-chief executive Jim Balsillie. "The seasonal slowdown in net subscriber account additions that we expected in the new year did not occur and our focused execution with partners has continued to produce strong results within both enterprise and consumer segments."

RIM's ability to maintain its subscriber momentum has been attributed by some to its lower-cost offerings, such as $99 Blackberry Pearl, for which Apple offers no competitive option. Following the introduction of a $499 16GB iPhone earlier this month, BMO Capital Markets analyst Keith Bachman suggested that the Cupertino-based company may be going in the wrong direction when it comes to pricing.

"We believe Apple generates more than $200 in gross profit over the life of the phone, compared with approximately $100 for the actual sale of the phone," he wrote in a research report. "Consequently, we believe Apple would be much better off with lower-priced phones, with less profits at the time of sale, and significantly higher revenues/profits over the approximately two-year life of the phone."

Still, it's believed that Apple will aim to maintain its current course and the higher average selling price of its iPhone handsets later this spring with the introduction of a 3G model that should also help spur new demand. Reports have suggested that a target introduction is again planned for the June timeframe.