Apple iPhone 4 sets record sale pace despite gaffe

A member of the media takes a photo of the new iPhone 4, showing its slim design, following the device's unveiling by Apple CEO Steve Jobs in San Francisco, California in this June 7, 2010 file photo.

LOS ANGELES/NEW YORK (Reuters) - Sales of Apple Inc's latest iPhone blew away expectations in its first day on the market despite shortages and an embarrassing online ordering glitch that thwarted many shoppers.

Apple shares rose nearly 3 percent on Wednesday after it announced sales of more than 600,000 iPhone 4s, a record for just a single day of pre-orders. That put the device on track to surpass sales of its previous iPhone models as well as its iPad tablet computer, and sounded a strong challenge to rivals like Nokia Corp, which warned of weaker-than-expected sales at its phones unit.

But Apple apologized on Wednesday for having to halt sales temporarily after the surprising volume of online interest overloaded order and approval systems and supplies ran out.

Apple's website said Wednesday afternoon that products ordered then would be shipped by July 14, three weeks after the phone's scheduled June 24 launch in stores and slower than the July 2 shipment promised earlier in the day. The site was still slow on Wednesday, making it unclear if orders were going through.

The phone's exclusive U.S. carrier AT&T Inc said it had halted pre-orders and that sales would resume as soon as inventory becomes available.

The Apple faithful appeared unconcerned. Analysts say the new iPhone would likely surpass sales of the last iPhone 3GS model, about 1 million units of which moved in its first three days. Helping drive that stellar performance will be an influx of new users jumping on the smartphone boom, as well as a two-year replacement cycle for existing iPhone fans.

The first round of carrier contracts signed for the first 3G-based iPhone -- launched in 2008 -- are due to end soon, JPMorgan analyst Mark Moskowitz said in a research note.

"It's easy to forget how early we are in the adoption of this device," said BGC Partners analyst Colin Gillis, saying many had underestimated the size of the iPhone's addressable market. "There's only 50 million of them out there. 600,000 is still a drop in the bucket."

One analyst said sales of the device could reach 10 million per quarter, once Apple can meet demand.

"At some point in the next three to four months they'll catch up. That's when they'll start hitting the 10 million per quarter mark," Hapoalim Securities analyst Kevin Hunt said.

"There is probably enough demand (to hit that number) in the third quarter but there's probably not enough supply."

Another analyst, Shaw Wu of Kaufman Bros, said his eight million estimate for the quarter is probably conservative.

Some other analysts have raised concerns that Apple supply shortages -- which caused a delay in the international launch of the iPad, for instance -- would drive impatient buyers to rivals.

Apple and AT&T have incurred several recent technical and public relations embarrassments, including a security breach on the iPad that exposed email addresses of public figures, and an investigation into a missing iPhone prototype.

AT&T also said it received complaints that potential iPhone 4 customers were seeing other customers' data on its website. It did not comment on this in Wednesday's statement.

Apple unveiled the slimmer, $199 iPhone 4 last week, kicking off its fastest-ever global product roll-out to try to stay a step ahead of rivals like Google Inc in a red-hot smartphone market.

The device boasts a higher-quality screen and longer battery life, video chat via Wi-Fi, and a gyroscope sensor for improved gaming.

VERIZON ON THE HORIZON?

Shares of Apple, still hovering near a lifetime high, closed up 2.9 percent at $267.25 on Nasdaq. AT&T slipped 0.08 percent to $25.52 on the New York Stock Exchange.

AT&T said orders of the iPhone 4 were 10 times higher in their first day than for the iPhone 3GS on its launch day last year.

It said it chalked up more than 13 million visits to its website on Tuesday, including customers checking to see if they were eligible to upgrade to a new phone. It said eligibility checks were three times its previous record for a single day.

Hudson Square Research analyst Todd Rethemeier said the sales numbers were good news for AT&T, especially because of widespread expectations that bigger rival Verizon Wireless, a venture of Verizon Communications Inc and Vodafone Group Plc, will soon be able to sell iPhones too.

"It means they're locking up customers into new two-year contracts. Nobody knows when Verizon's going to the iPhone, but there's a lot of speculation this will happen." he said. "Anything AT&T can do to lock up customers now is a good thing."

Rodman & Renshaw analyst Ashok Kumar said the technical snafus were more of a black eye for AT&T than Apple, and reinforced his expectation for a Verizon iPhone late this year. He does not see the problems helping rivals who make phones powered by the Android software from Google.

"People who can't get their phones today, they're not going to go to Android. They'll just come back tomorrow and try to buy the iPhone," he said.

AT&T said the availability of its inventory would determine whether it could resume taking orders. Apple apologized to frustrated would-be buyers and asked them to "try again" online and in stores once the phone is in stock.

"We apologize to everyone who encountered difficulties, and hope that they will try again ... once the iPhone 4 is in stock," Apple said in a statement.

(Additional reporting by Alexei Oreskovic in San Francisco and Carolina Madrid in Los Angeles, Writing by Edwin Chan; Editing by Matthew Lewis, Gerald E. McCormick, Richard Chang, Gary Hill)