RBC: Apple To Change iPhone Sales Model, Sell 14 Million Phones This Year

Apple's 10 million iPhones in 2008 goal? Too low, says RBC analyst Mark Abramsky in a note today. He thinks Apple (AAPL) will sell 14 million phones this year, up 40% from his previous prediction of 10 million -- and more than 8 times the 1.7 million phones the company sold in the first three months of the year. He also thinks Apple will sell 24 million iPhones in 2009.

Why? The most obvious helper: A new iPhone, which should be able to access faster, "3G" wireless Internet service. Also: Broader distribution through new carrier deals in Europe and Asia, broader consumer interest thanks to Apple's forthcoming apps platform, and broader corporate interest thanks to the "iPhone 2.0" upgrade, planned for June, which adds corporate email support, etc.

But Abramsky also thinks Apple is going to change the way it sells the iPhone by loosening its distribution strategy. Specifically, he thinks Apple could:

• Drop or reduce exclusivity in some markets. This would let people buy iPhones without being forced to use Apple's hand-picked carrier partner -- e.g. T-Mobile (DT) subscribers in the U.S. who don't want to switch to AT&T (T).
  
  
• Allow carriers to subsidize pricing, as rumored. For example, a $200 iPhone could sell 50-100% better, he says. AT&T would happily pay $200 to steal a subscriber from Verizon Wireless -- it's already doing it for every other phone it sells.
  
  
• Sell official "unlocked" phones that can work with any wireless carrier. This could help iPhone sales momentum jump 2-3x outside of North America, he says.
  

All of this points to Apple getting lower (or zero) kickbacks from wireless operators -- highly profitable service fees it gets now in exchange for carrier exclusivity/early adopter status. (RBC estimates $8 per subscriber, per month, on average.)

To make up for it, we expect unlocked iPhones to sell for a hefty premium -- Abramsky's guess of an additional $200 sounds right to us. But for the rest of the market, Apple will need to find new ways to boost or maintain its margins -- or settle for lower profitability in exchange for greater market share.

Either way, Abramsky says, the iPhone is "solidly accretive" to Apple's profits. He estimates an unlocked $400 iPhone still gets a 35% gross margin for Apple; last quarter, its overall gross margin was 32.9%.

(Silicone Alley Insider)