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Apple's Gift Card sales may understate iPhone shipments

Giving the gift of iPhone this holiday season requires that customers purchase a gift card from Apple rather than the handset itself, a process that may understate the company's December quarter shipments as a result.

Speaking to clients in a research note Wednesday, Kaufman Bros. analyst Shaw Wu said he believes Apple is seeing a strong reception to the gift card program, which simplifies the iPhone buying process because shoppers don't need to wait in line for the handsets to be activated or provide any personal information.

"While Apple gets to collect cash up front, which improves cash flow, Apple cannot recognize the sale of an iPhone until the customer activates it," he explained. "The risk here is that the customer will likely activate post-Christmas; therefore revenue and units won't likely be recognized until the March quarter."

In total, Wu estimates several hundred thousand to one million units could be impacted by the program, which would in turn serve to boost iPhone shipments during Apple's March quarter —historically one of the company's weakest seasonal periods.

Based on these observations and recent checks into the iPhone maker's supply chain, the analyst is modeling for shipments of 6 million units during the three-month period ending December, or about 10% less than the company's initial build plan had suggested. Apple shipped 6.9 million units last quarter.

"With Apple not providing unit guidance and the difficult macroeconomic backdrop, investor expectations seem to vary from 5 million to 7 million units with most toward 6 million to 6.5 million," he said.

Wu also continues to believe that Apple will inevitably enter into the sub-$100 iPhone arena but said the time is not yet right, citing channel conflict and a need for uniform pricing.

"As we mentioned, the price of the hardware that customers pay is a minor part of the economics. It's really about the subsidies, revenue share and royalties," he said. "iPhone is one of a few cell phones out there with the ability in driving higher average revenue per user for carriers; therefore making it a strong candidate for greater subsidies."

Wu continues to rate Apple shares a Buy with a 12-month price target of $120 per share.