Apple IPhone Sales Buoyed by Hacker Demand Overseas,

[David Farber <dfarber () cs cmu edu>]

Apple IPhone Sales Buoyed by Hacker Demand Overseas, Piper Says
2007-10-05 15:40 (New York)


By Connie Guglielmo and Crayton Harrison
     Oct. 5 (Bloomberg) -- One of every 10 iPhones may have been
unlocked to run on unauthorized wireless networks, forcing Apple
Inc. to quash those efforts to avoid losing lucrative service
fees for the handsets, according to Piper Jaffray & Co.
     Overseas demand is prompting some buyers to purchase five
phones at a time at Apple stores in the U.S., modify the software
that makes the devices only work with AT&T Inc.'s service and
resell the unlocked phones, analyst Gene Munster said.
     Because it gets an undisclosed slice of AT&T's monthly fees,
Apple loses money when buyers don't sign on to that service. So
far the lost revenue hasn't hurt Apple and to keep it that way
Chief Executive Officer Steve Jobs last week updated the device's
software to make the hacked phones unusable, a process users say
turns the devices into ``bricks.''
     ``As much as 10 percent of the iPhones sold in the September
quarter were purchased with the intention to be resold
unlocked,'' Munster said in a report yesterday. ``Apple
effectively minimized the market for unlocked iPhones'' when its
update made many inoperable, he said.
     Munster based his estimate on sales of 1.05 million iPhones
in the three months ended in September.
     Apple won't say how many buyers may have unlocked the $399
iPhone since it went on sale June 29, according to Natalie
Kerris, a spokeswoman for the Cupertino, California-based
company. AT&T, the exclusive provider of mobile-phone service for
the handset in the U.S., also declined to provide an estimate.
     ``We've seen relatively few instances of it,'' AT&T
spokesman Mark Siegel said. ``I have a strong feeling that the
incidence of hacking is in inverse proportion to all the blogging
and news stories about it.''

                        Generous Numbers

     Jobs is counting on his first-ever mobile phone to become
Apple's third major business, alongside the Macintosh computer
and iPod. He cut the price by $200 in September to spur holiday
orders, and has forecast 10 million shipments in 2008.
     ``The majority of users are just not interested in hacking
the iPhone and second, not capable technically,'' said Shaw Wu,
an American Technology Research analyst in San Francisco. He said
less than 1 percent, or about 10,000 iPhones, may have been
unlocked. ``One percent is even being generous.''
     Apple has said it will receive a cut of the $60 to $220 in
monthly fees San Antonio-based AT&T charges iPhone owners as part
of a required two-year contract.
     Sanford C. Bernstein's Toni Sacconaghi, the top-ranked
computer analyst according to Institutional Investor magazine,
calculates AT&T's payout at $15 a month per user.
     AT&T and three European wireless carriers due to sell the
iPhone in November may pay a combined $715 million to Apple next
year, based on an estimated 7 million iPhones sold. Those fees
will account for more than a third of Apple's total iPhone sales
in 2008, Sacconaghi said.

                        Deterring Hackers

     Apple rose $3.72 to $159.96 at 3:25 p.m. in Nasdaq Stock
Market trading. Before today, the shares had gained 83 percent
since Jobs announced the iPhone Jan. 9.
     The company advised users with the now-broken, hacked phones
to buy a new one, Sacconaghi said. ``This may deter folks from
unlocking in the future.''
     At least three groups claimed in August to have programs
that alter the iPhone to work on networks belonging to companies
such as T-Mobile USA Inc. and Vodafone Group Plc. A New Jersey
teenager, George Hotz, posted the first guide on how to hack the
phone on his Web site, a process that includes soldering the
circuitry and modifying the software.
     After Apple's update, hackers started to work on new ways to
bypass it, according to sites including AppleInsider.com and The
Unofficial Apple Weblog.
     Jobs, in London last month to announce European distributors
for the iPhone, said Apple has been compelled for years to
counter programmers working to gain illegal access to the
internal workings of its products, including the iPod.
     ``We try to stay a step ahead,'' Jobs, 52, said Sept. 18.
``People will try to break in and it's our job to keep them from
breaking in.''

--Editor: Antonelli (jma)

To contact the reporters on this story:
Connie Guglielmo in San Francisco at +1-415-743-3582 or
cguglielmo1 () bloomberg net;
Crayton Harrison in Dallas at +1-214-954-9456 or
tharrison5 () bloomberg net.


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