AT&T Earnings Up, but iPhone Sales? Feh!

AT&T, the largest telephone company, reported first-quarter earnings today that solidly beat Wall Street’s forecasts as wireless subscribers continued to devour data services like text messaging and Internet access.

But investors and analysts were clearly disappointed that AT&T had not signed up more iPhone customers as subscribers at the end of the quarter, sending down shares of both Apple and AT&T in early trading.

AT&T said it signed up 146,000 iPhone customers, well below analyst estimates, which ran as high as 500,000 units. Shares of Apple were down as much as 5 percent in early trading and more than 3 percent in mid-afternoon, trading around $139. AT&T’s shares were up about half a percent in mid-afternoon, at slightly above $40.

AT&T has an exclusive deal with Apple to provide wireless service for the iPhone, the combination digital music player, cellular phone and Internet device. The phone went on sale on June 29, two days before the quarter ended, amid fanfare surpassed only by the release of the final “Harry Potter” book last week.

The number could also reflect the difficulty many iPhone customers reported experiencing when they tried to activate their phones during the first few days, analysts said.

Richard G. Lindner, AT&T’s chief financial officer, described demand for the iPhone as “strong,” and said that iPhone subscribers tend to buy more expensive rate plans than other wireless customers.

Eugene Munster, an Apple analyst with Piper Jaffray, said iPhone sales were largely in line with analysts’ earliest targets, but as public excitement grew so did investor expectations. “Our belief all along has been that there is a surge of demand coming for the iPhone, but it is hard to predict when that surge will hit,” he said.

Mr. Munster compared the iPhone launch to that of the iPod, which was viewed a huge disappointment at the end of its first quarter on the market. Apple sold 4.6 million units during the last quarter of 2004, while Wall Street had expected 8 million. Mr. Munster said the iPhone would probably show a similar gradual ramp up, surging in 2009. A bright spot in the iPhone numbers during the quarter was that roughly 40 percent of the iPhone subscribers were new AT&T customers.

Revenue from data services, which include text messaging, e-mail and Internet access on smartphones, increased nearly 67 percent to $1.7 billion year over year, while a 13 percent rise in overall wireless revenue largely met expectations. Mr. Lindner said that only 60 percent of AT&T’s wireless customers today use data services, providing AT&T with a huge growth opportunity. Wireless growth continued, with service revenue up nearly 15 percent year over year, while wireless subscribers rose by 1.5 million to 63.7 million. AT&T’s churn rate, which refers to the number of subscription cancellations, declined slightly during the quarter.

AT&T said its profit rose to $2.9 billion, or 47 cents a share, from $1.81 billion, or 46 cents a share in the quarter last year. The prior-year results came prior to the acquisition of BellSouth.

http://www.nytimes.com/2007/07/24/technology/24cnd-phone.html?ref=technology