How did I get the iPhone number so wrong?

Here were my predictions for the third fiscal (second calendar) quarter from April 25th.

Estimates for Apple’s third fiscal quarter (ending June) | asymco

Later in the quarter I updated them for submission to Philip Elmer-Dewitt’s blog at Fortune. The original and updated figures are shown in the following table (with actuals).

The changes were not significant except in a reduction of iPads. Three items were better in the early call and three were better in the late with one item equal. Using a simple method for scoring the results I gave myself the following report card:


As the Revenue and EPS figures are dependent on the other line items, the most significant error is clearly the iPhone where the error was over 30% (and hence deserves an F). The other figures were not very close either  so the overall grade point average is a very mediocre C (2.3).

So, as in previous quarters, nailing the iPhone number is everything. Having failed to guess correctly, the whole performance fell apart.

So how did I manage to get the iPhone number so wrong?

My forecasts depend on a few theories:

  1. Overall production capacity is increasing at approximately 100%/yr.
  2. There is significant seasonality due to production ramps as the product is updated on a yearly cycle. These cycles are tuned to reach maximum throughput during the US holiday period. I discussed this theory here.
  3. Demand is practically unlimited and is throttled by both production schedule and distribution agreements

I successfully applied these theories to the iPhone for over three years and it has always yielded very good (above average at least) results. However, when we reach a point of failure we need forensically consider where the theories failed.

What I suspect happened is that the second theory no longer holds. What I expected was that as the iPhone 4 was reaching the end of its cycle, growth would moderate (as it did last year with the 3GS and we ended up with 61% growth into the last quarter). The reason growth would moderate was that Apple slowed production of the old model in order to switch out to the new model–we saw the same thing happen with the slowdown in iPad 1 and transition to iPad 2.

Instead, what Apple did this year was open the taps on production of the iPhone 4 as it extended its lifetime beyond the traditional 12 months. In other words, the pipeline was not “drained” ahead of a new ramp. Distribution was also boosted with a burst of new operator deals which actually enlarged the pipeline.

So we are witnessing a pivotal moment in the product’s strategy. By slightly lifting off the gas in terms of product cycle, Apple actually set the iPhone loose. The imposition of a yearly cycle on the product coupled with unlimited demand caused it to be artificially constrained.

So I can only reach a conclusion dripping with irony: by stepping off the gas the product actually accelerated.

This phenomenon will allow the company to unleash a wave of unprecedented growth which might claim another theory as victim. Namely, is the limit of 100% growth about to be breached?



A theory approach to forecasting means that you have to stay true to the theory even if there is anecdotal evidence that may suggest you are wrong. If you bend to the anecdotes then you will not learn from failure. If you stick with the theory and ask where it went wrong, you will build a better theory.

  • r.d


    I was really surprised by your miss of iphone # (15 million) for fiscal Q3.
    Apple sold 39.99 million iphones in fiscal year 2010.
    So if you project 80 million for fiscal year 2010 that
    meant that Apple had to sell 20 million in fiscal Q3
    and 25 million in up coming fiscal Q4.

    PS. sorry for double post.

    • asymco

      I considered 80% growth into the tail of a product cycle to be completely consistent. I had a far higher rate for the following quarters which would keep the (calendar) yearly growth at 100%.

    • asymco

      By the way I *never* use fiscal quarters for any analysis. The Earth rotates around the Sun not around an accountant's fantasy.

      • r.d

        well the only reason I used the fiscal number is that is how
        I have it in ominoutliner.
        Apple has only revved up the iphone #s only quarter after the introduction
        of a new model. so iPhone 4 was introduced in July. only in sep. quarter,
        they did 14 mil last year. so doubling that to 28 mil the quarter new iphone is
        introduced is also questionable.

      • a k

        Ha, as if the choice of the start of the calendar year in not arbitrary.

  • eugeneyk

    Thanks for this post! As always, your footnote is a real gem!

  • Don't let it ruin your vacation.

    • asymco

      A theorist delights in being wrong because then he then gets to build a new theory.

      • Angel Lamuno

        An authentic theorist’s true love is not a pet theory but truth itself!

  • Eric D.

    Having a new model is a bonus, but I think more and more, there's the sense out there that people see this incredible revolution taking place, and they're afraid of being left behind. This is somewhat borne out by the surveys that find iOs to be the predominant choice of future smart phone buyers. It's about getting on board with the new phenomenon.

    • EWPellegrino

      You have to be careful with that survey. It seems to consistently put the 'intent to buy' on iPhone higher than subsequent sales numbers indicate they achieved. It could be as simple as price being a big determinant when people actually get to the store.

      Also that survey will be misleading when we're heading up on a new iPhone refresh – lots of people intending to buy the iPhone 5 in september.

  • Guest

    Addition of Verizon and two-tier pricing strategy (iPhone 3GS at $49 vs. iPhone 4 at $200 – $250)… pretty important variables in US market that would stim the top line numbers. Foot is firmly on the gas Horace!

    • asymco

      The gas pedal I referred to is the control over product cycle time. Pricing reflects what Apple can produce. The average selling price has not dropped implying that Apple has not changed pricing to the channel. End user price is a reflection of operator rivalry.

      • David

        These numbers are staggering. And while obvious, I have to say it. They sold 20.4m units of a phone that was a year old, had the original expectations of being replaced, is being "assailed" by "hordes" of Android devices.

        I'll bet that no other phone sold as many units.

        It also validates the strategy of building a high quality devices with legs as opposed to trying to when an arms race with constant releases. Look at the phones that have been out during the iPhone 4's life: Atrix. Thunderbolt. Galaxy 2. Droid Pro. Droid X. Incredible 2.

        The iPhone 4 stands toe to toe with those phones and is winning.

      • unhinged

        Not quite the same phone. They had to make significant changes to get it to work on CDMA for Verizon.

      • huxley

        Sure, there are differences, but fundamentally it had the same screen, processor, OS (slightly off the main branch, but still the same OS), memory, storage, I/O.

      • “They sold 20.4m units of a phone that was a year old, had the original expectations of being replaced, is being "assailed" by "hordes" of Android devices.”

        And which the largest US consumer-products magazine rated as “unacceptable” after a pack of piranhas attacked.

  • 2sk21

    The iPhone4 only recently became available in countries like India. This may account for the increased volumes as well.

    • davel

      I wonder if the phone in India is a big deal. There certainly is a growing middle class which in terms of numbers is quite significant, but Apple apparently does not think it needs to launch their products there in the first wave with other tier one territories. My guess is the mobile infrastructure is not mature enough in that country to give Apple confidence to give it the same treatment as China.

  • davel

    I wonder if #2 still holds. I think it does. I expect the last 3 months of the year to surpass the previous 3 quarters. Apple may have just shifted its cycle by one qtr. This makes the phone perfectly placed for the Christmas season with the tablet a kicker in the Spring. This makes the two events about 6 months apart.

  • FalKirk

    "The imposition of a yearly cycle on the product coupled with unlimited demand caused it to be artificially constrained."

    This is significant on so many levels.

    It's always been assumed that Android had an advantage because it could iterate it's products continually throughout the year thus taking advantage of the latest and greatest breaking technology. On the flip side, it's always been assumed that the iPhone has been at a disadvantage because it only had one model that came out once a year. Now here we have a 9 to 12 month old phone – presumably at the end of its lifecycle – selling better in Apple's worst quarter than it did in the holiday quarter. Amazing.

    As we know, Apple does not like to be constrained by calendar events. If it weren't for the huge boost that sales regularly get from the holiday quarter, I'd fully expect Apple to break away from cyclical releases. On the other hand, over 62% percent of Apple's sales come from outside of the U.S. Apple is an International company and how much of the rest of the world is affected by the holiday quarter? Perhaps Apple is ready to abandon cyclical after all and move to a purely functional update cycle.

    So very many questions. So few answers.

    • David

      The iPhone 4 was significant. Wholly different than its predecessors, striking in appearance. Put up say the original Droid to anyone phones released a year later it it looks bad.

      I would argue that the sheer quality of iPhone 4 is carrying the day. And wait for iOS5. Think about this. The iPhone 3GS will be running iOS5, two years after the 3GS came out.

      This will make this an entirely new phone with none of the problem that are currently experienced with Android phones of similar age. And there is no talk that I've heard of feature degradation for the 3GS. Is this is the case, full feature iOS 5 support and I'll wager some of the extra time was tuning for the 3GS.

      My prediction is that it will come out of the gate working well. This will, I think, solidify Apple in the eyes of many as a cutting edge, yet safe purchase.

      • Geronimo

        Indeed, the iPhone 4 as a piece of hardware seems to be in a league of its own:

      • EWPellegrino

        This actually presents a conundrum for Apple. Previously when they brought out a new model they could continue to sell the old model as an entry-level phone – but as Gruber pointed out recently, the iPhone-4 just can't carry that off.

        You look at it and you know it's a premium phone, it can't be entry-level. So either the iPhone-5 has to be unbelievably good-looking, or they may have to completely kill the iP-4 when they launch it – which would significantly disrupt supply presumably.

    • jjacob

      My two cents: Apple, being a vertical computer manufacturer, can control the hardware and software refresh cycles. The hardware cycles can be longer when you can control the software refreshes that bring new features and appeal to new customers.

      Windows and Android handset manufacturers can't do this because they don't control the software. Nokia is still living in the pre-iPhone age where the % of consumers upgrading their phones was so small. BB is trying to crawl out of that old mentality (I'll admit I haven't owned a BB in years so can't speak to the upgrade process).

      The same product is appealing for a longer time due to software. Software upgrades are minimal operationally compared with hardware upgrades. Apple's history has positioned them for this game plan.

    • Relayman5C

      Re: "taking advantage of the latest and greatest breaking technology." But most Android phones are not shipping with the latest version. It's not uncommon to hear of someone getting a new Android phone with software that's two and three generations behind.

      • FalKirk

        @Realyman5C, you make a good point, but I was referring to hardware updates and upgrades.

      • Relayman5C

        Still, having the latest and greatest technology doesn't help when it's bundled with out-of-date software. I'm not disagreeing with you, but rather I'm disappointed that Android is not taking advantage of its inherent advantages over the iPhones.

  • robichaux

    Horace, this is a well-known phenomenon in aviation: each airframe has a speed at which the climb performance is optimal. Below *and above* that speed, climb performance is negatively affected compared to the "sweet spot". Apple is clearly closer to the rate-of-best-climb for iPhone sales based on lengthening the product cycle. The interesting question is whether this is an artifact of other product constraints or a deliberate decision to lengthen the cycle. I guess we'll know more in a year or so after has had some time in the channel.

  • I think the effect of white iPhone 4 has been understated. I don't think Apple would have sold 20.34M iPhones in FYQ3, had it not been for the release of the white iPhone 4. Specifically in Asia, the white iPhone has been extremely popular to a point Apple had to limit sales/person.

  • Gromit1704

    Good to see our old friend Kathryn Huberty has not disappointed us, consistantly last as usual.

    I must admit my forecasting is as bad as hers, because I have predicted her losing her job so many times, yet she remains – sitting on the bottom of the pile yet again.

    • Jon S

      I don't usually upvote snarky comments, but when I do, Katy Huberty snark is the only snark I do.

  • westech

    Apple clearly has a road map listing countries, carriers and what technology they use, what needs to be done for each to penetrate the market, and other requirements. They use this road map to select their market penetration priorities. They are also well aware of their manufacturing capacity for each product, what is involved in switching products (retooling, start up, raw materials, anticipated ramp up time, yield and throughput), and so on.

    The iPhone 4 is a hell of a good product and has all of the features in demand today. They probably judged that they could continue to open new market areas for it without having to resort to price cuts, allowing them to do more development of the next generation phone(s), and to finish OS5. They have been working on China for some time and knew it was ready to pop enough to continue to grow iPhone 4 sales. And of course they dampened expectations that a new iPhone was imminent. As for seasonality, it is largely based on holidays and culture, and what we have experienced in the past is probably very different from what we can expect from China and India so past performance can be very misleading.

    By having a quarter without a major manufacturing change they were able to optimize experience, lower manufacturing costs and increase capacity. For the iPad it gave them a chance to improve on what seems to have been a difficult start-up, all of which improve margin.

    And being a superbly run company they were able to keep operating expenses in line, spreading the overhead over a bigger revenue base.

    There is no easy way to estimate their profitability without having a lot of inside information.

  • Is this a bit like Stringer Bell near the start of ‘The Wire’ when he says “When we do worse, we do better”? Is that worrying?

    I guess releasing new iPhones more slowly/unpredictably isn’t necessarily worse.

    • addicted44

      The thing with the iPhone 4 is that when iOS5 is released, it will still be better than every other competitor in the market. Despite lacking a dual core processor, it will still work much faster than any Droid (Apple has done tremendously well to wring huge performance gains from lower clock speeds…In fact, often my original iPhone, on Edge, does stuff faster than my friend's year old Droid…not in general, but in many specific areas).

      If Apple is providing a phone without contract, I really hope it is the iPhone 4 though. The iPhone 4 is miles ahead of the 3GS, in looks, screen, and performance.

  • Adam

    100% growth implies 40 million iPhones sold 1 year from now, which seems inconceivable. But then 20 million was inconceivable last year. What do you think Horace, is 40 million possible for Apple in 1 year's time, given what you know about the headroom in the smartphone market?

    • asymco

      I think it's perfectly possible because the demand is there. Don't forget that the install base will want to upgrade. So 10 to 15 million will be existing customers. These 20 million just sold will be replaced between 1 and 3 years from now. That's what iCloud and App Store are all about.

      • addicted44

        Also, Apple should have a better China strategy by that point. Additionally, you will have all the Verizon (and possibly Spring/TMobile) people who bought their Droids last year because the iPhone was not available, finishing their 2 year contracts.

        I think 2012 will be a huge year for Apple, assuming they can get their supply to match demand, and iCloud does not damage their brand by having major technical issues.

  • Gromit1704

    Nevermind Horace, all those who said the so called antenna problems in the iPhone 4 would affect sales must be feeling pretty silly at these large figures.

    • FalKirk

      "all those who said the so called antenna problems in the iPhone 4 would affect sales must be feeling pretty silly"-Gromit1704

      No they're not. They are just as sure today as they were 12 months ago that the iPhone 4 is "fatally flawed". In their world view, the fact that the iPhone 4 is selling so well despite being unusable is all the more proof that people who buy Apple products are weak-willed sheeple who are under the influence of Steve Jobs' "reality distortion field".

      When faced with the option of changing one's opinions to conform to the facts or distorting the facts in order to make them conform with one's opinions, most people, most of the time, will readily choose the latter.

  • No matter what, everyone's observational skills here are advancing, and it's so refreshing to see Horace also coming up with new innovative ways of looking at things.

    Even so, this is a game where we're trying to assess what's really happening in the marketplace using relatively coarse data snapshots, when the entire time the finely grained and detailed data is sitting inside Apple somewhere, showing individual streams of product going here and there, waxing and waning, with a sum total that has interesting bumps along the way.

    This detailed data includes the affect of opening new markets along the way, the out-of-sync timing of the iPhone coming to Verizon, the White iPhone, and [Apple only knows what else].

    Anyway, when I read all this, it's too bad that we're put in the position of having to be like detectives on some forensic-based TV drama where you have two pieces of evidence and you have to reconstruct exactly what happened, with proof.

    And it's exceedingly obvious to me that the prognosticators and observers are also burdened with only working with physical data of units, financials, and market shares, etc, and cannot yet deal with intangibles, such as affects of advertising campaigns, word of mouth, and yes, the unique design of the phone that turns heads, emotion and delight, the ecosystem, product canabalization and the halo effect, cross-pollination (e.g. iPod functionality, iOS interfaces), and on and on. I can hear people saying "Oh, none of that stuff really matters." But isn't that just because we have no choice but to find a way of figuring things out without being able to quantify the intangibles?

    It's all very fascinating, and challenging. Let's keep pushing the envelope!

  • CndnRschr

    As has been alluded to, the significance of selling so many copies of a single model (aside flash memory and GSM/CDMA chipsets) is the sheer economy of scale, of production confidence and consumer awareness. Instead of revealing a new shiny coat of armour every few months, Apple just showed off the new things you can do with the iPhone via apps. It is not inconceivable that Apple will ride the asymptote and, in a few years, essentially stop new designs – instead iterating a perfected (to their standard) design. Even smartphones are disposable so there will be sufficient replacement revenue once a critical mass in circulation has been achieved. This would normally correspond with commoditization of a product and loss of margin. But the iPhone has an audience with strong vested interests. Yes, normal CE practice is to constantly evolve, but take a look at the iPod Touch. It's current design is 95% similar to the first one, four years ago, yet now represents half of all iPod sales. The MBP design has stabilized, as has the iMac. Apple is slowly adopting a franchise-like approach. After all, the Big Mac has been around for quite a while and McD's profits aren't going south. The wrinkle is that Apple is a design company. To me, that means it will surely branch out beyond its current "stable" of products. Apple is not competing with RIM, Google, Dell. It's competing with everyone.

  • sscutchen

    A lot of comments are assuming that Apple did something to increase demand… Verizon, more countries, white phone. But y'all need to go back and reread. The point Horace is making is that Apple does not appear to be lifting off on production. Remember Rule #3:
    "Demand is practically unlimited and is throttled by both production schedule and distribution agreements"
    Some of this is due to the later introduction of a new phone. But I think it may suggest that the iPhone 4 will be in production for a while; it is not to be replaced in September. A new phone will be sold alongside.
    Does that mean the 3GS goes away and the 4 takes its place as the cheaper phone? Or will there be 3 phones? Or is the September phone such a derivative of the 4 that the production swap can be made essentially on the fly?

    • I don't get the logic. If there is seasonality in the face of practically unlimited demand, then seasonality is due to production— assembly lines shut down to tool up for the next quarter, and then inventorying them for the inevitable burst of sales.

      So the seasonality might be seen as Apple creating the a fake shortage to generate enthusiasm for the new model, or perhaps customer satisfaction management by making it harder to get last year's model shortly before the new one. But as Horace says, the seasonality looks to be gone, we'll get the look at the new iPhone without any suggestion of demand management.

      • sscutchen

        I'm suggesting that the historical seasonality might be due to the ramping necessary to support an annual new phone rollout, and that THIS year's lack of seasonality might suggest that the iPhone 4 was not replaced in June, and may not be being eliminated. Thus there may have been no need to ramp down production in anticipation of a new September model.

  • Ziad Fazel

    Very impressive reflection Horace.

    Other factors that may have helped:
    • The arrival of Windows Phone 7 being a non-event
    • RIM and Android tablets having different OS than the phones, giving the multi-device iOS a greater advantage
    • Faster shift from feature to smartphones as major suppliers like Nokia jump from burning platforms

  • pk de cville


    How about including a 'disruption by country' function?

    The iPhone is powerfully and smoothly expanding in the US, Canada, EU, Australia other developed countries.

    And in many countries, the Disruption is just beginning – China, Japan, Korea, Russia…

    And in others it's set to begin (next year): India, Brazil, Mexico,…

  • pk de cville

    Another function to add: The iPad halo…

    I believe much of the growth of the iPhone will be accelerated by the perceived excellence and 'magic' of the iPad.

    Potential iPhone customers are thinking: "Apple just gets it. The iPad is incredible and unmatched. The iPhone must be incredible too, even though Android has done a pretty good job aping it. I'm getting an iPhone to go with the iPad I'm using (The iPad I bought for home, business, school or the iPad I'm using although someone else paid for it.)

  • Kristian

    I have a conspiracy theory 😉

    With iPhone 4 Apple want's to top this list:

    You heard it from me ;P

    Apple is ramping up the production so that they can produce same amount of phones as Nokia and Samsung, so this is just a beginning. They are doing it very fast.

  • Kristian

    Apple payed license fees 430 million EUR to Nokia.

    ""Nokian mukaan laite- ja palveluyksikön liikevaihtoa nosti 430 miljoonan euron suuruinen ”teollisuusoikeuksien rojaltitulojen kirjaaminen”, joka kohdistui huhti-kesäkuuhun ja aiempiin katsauskausiin""

    • Kristian

      They corrected me.. 280 million EUR came from Apple rest was somewhere else.
      Next quarter (Apple Q4)we have to remember that China Telecom alone takes something 15-20 million iPhones.

  • Simon

    And there is no talk that I’ve heard of feature degradation for the 3GS. Is this is the case, full feature iOS 5 support and I’ll wager some of the extra time was tuning for the 3GS

    So far Apple has introduced exclusive features in iOS for the new models, which was not announced as part of the new version of iOS. 3G and GPS on the iPhone 3G, Voice control on the 3GS and FaceTime on the 4. I think this trend will continue. Apple doesn’t have a habit of empowering devices without taking advantage of that power. But still I agree, Apple’s continued support for older phones is unlike anything in the industry. It makes customers upgrade because they want to, not because they need to.

    • David

      I guess my point was thinking more of multitasking and performance problems on iPhone 3G.

      The items you listed were based on hardware. 3G and GPS for the iPhone 3G, faster CPU on the 3GS and front camera for the iPhone4. So I agree that improved HW will bring something to the table. But if the items not dependent on a new phone are available to the 3GS(iCloud, notifications that sort of thing), that'll make Apple's support look stunning.

      It'll also show that they learned from the iOS4/iPhone 3G problem.

  • Simon

    That was a reply to David, from who the first paragraph is quoted.

  • jonas

    we all make a mistake, now lets discuss those 20 millions iPhones shipped . It was china behind the increase! maybe a 2 million, so then we have to gueass , from where the decrease in other parts of the world came from? ( dont forget that channel stuffing increased with 700.000)
    it must be Uk France and Germany
    what does this mean? I guess developers will be less interested in working for the iPhone in the future

    • David

      Some to Verizon. I had a friend who got an iPhone 4 about a month ago. "Why not wait," I asked?

      Because the iPhone 4 is on Verizon now.

    • EWPellegrino

      Even if we accept your premise the decrease is small, and is easily explicable by people holding off on purchasing an iPhone-4 as they're waiting for iPhone-5.

      Another factor that we have to consider is that until recently Apple had poor distribution in China, but that didn't mean that people in China weren't using iPhones. They were buying them abroad in markets such as the UK where unlocked phones could be purchased and taking them home, there may have been some bulk grey-market imports too.

      So the sudden rise in China sales may be partly displacement of non-china sales, and yet have no impact on non-china market share (which is measured by consumer survey).

    • asymco

      The increase was not just China. The iPhone distribution increased with many new countries and operators.

  • jonas

    I mean the iPhone is going from a market share of about 30 % in smartphones to maybe 18% in europe , and that is happening rapidly

    • EWPellegrino

      Can you link the data that you're basing that statement on?

      • jonas

        I will link soon , am in a hurry,
        noticed I am the only one who got dislikes, hm
        can say though that the brand name iPhone is extremly strong in scandinavia
        come back with a link tomorrow
        someeone has to be critical on a blog 🙂

      • EWPellegrino

        I'm assuming you're talking about

        I think when iPhone is 'only' growing 50% in a market growing at 77% people are unlikely to be too worried.

  • unhinged

    What really amazes me is that Apple was able to ramp up production WHILE introducing a CDMA version of the phone in a period where the Japanese earthquake had sent shocks throughout the supply industry.

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    I applaud what appears to be the first intelligent use of graphics in the Apple blogosphere. In particular, the graphic on Profit/iPhone x Phones Sold Chart finally makes sense of the confusing verbal chatter about phones sold and profits taken.

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