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Apple loosens hold on iPhone

TECHNOLOGY

December 17, 2007|Michelle Quinn | Times Staff Writer

SAN FRANCISCO — Apple Inc. is trying to stop people from buying so many iPhones.

Since it started selling the multitasking gadget in June, the company has four times set limits on the number of iPhones it will sell to an individual. Apple loosened the restrictions a little last week, but customers still can't walk out of a U.S. store with more than five of the gadgets.

Why the counterintuitive approach?

Apple says it's rationing iPhones in an attempt to discourage resellers, who stock up and offer them online at inflated prices.

When the iPhone went on sale in the U.S. in June, Apple set the limit at two per person. Later that summer, the restriction was eased to five. That changed again in October, when the number allowed per person was lowered to two.

Shortly before Apple's action in October, there were reports of people buying as many as they could, ostensibly for the purpose of reselling them. When it cut the number allowed to two, it also required that purchases be made with a credit card so that the company could track sales.

The Cupertino, Calif., computer maker raised the limit back to five Dec. 10 but still requires credit cards for purchases.

"Limiting iPhone sales to five per customer helps us ensure that there are enough iPhones for people who are shopping for themselves or buying a gift," Apple spokeswoman Jennifer Bowcock said.

It's unusual in the consumer electronics arena, but setting limits on consumers is not without precedent in retail. For example, stores frequently limit items that are on special.

At Best Buy Co.'s 917 stores in the U.S., customers can buy only three DVDs, computer games and music CDs at a time, also a policy to discourage resellers, a company spokesman said. Best Buy store managers also can set a limit on any item if they suspect a shopper is hoarding with the intention of reselling, he said.

In Apple's case, resellers could be supplying a market for people who want to buy iPhones -- a combination cellphone, iPod and Internet browsing device -- without signing up for service from its wireless partner, AT&T Inc. These people would either be using the device without its phone feature or, most likely, altering the phone so that a person could make calls through a carrier other than AT&T. Apple, which receives a portion of the iPhone user's monthly AT&T bill payment, in October estimated that about 18% of iPhones sold had not been signed up for AT&T's service.

Apple's loosening of its iPhone restrictions means that "fears of people buying them and exporting them to be hacked may be lower," said Avi Greengart, research director of mobile devices at Current Analysis Inc.

In addition to worries about hackers and unauthorized resellers, another factor could be at work: Apple needs to carefully control supply and demand because it's unsure what kind of demand to expect for the iPhone's first holiday shopping season. Complicating things, the company also is ramping up manufacturing to tackle the European and Asian markets.

"The fact they let it out to five means they are saying, 'We do not have supply problems. Manufacturing is running OK, have at it,' " said Carl Howe, a principal at market research firm Blackfriars Communications Inc.

Apple dropped the iPhone's U.S. price in September, from $599 to $399, to try to turn it from a luxury item into a mass-market gadget.

What the company doesn't want, analysts say, is to be left with a huge surplus of iPhones after Christmas. Then it might have to slash prices to clear inventory.

Nor does it want to be in the position of Nintendo Co., which can't supply enough Wii game consoles to meet holiday demand. Nintendo said Friday that it would allow shoppers to buy a "rain check" voucher that guarantees them a Wii in January.

Gary Allen of Berkeley, who writes a blog about Apple stores at ifoapplestore.com, said the iPhone limits might actually boost sales through reverse-psychology marketing.

"People normally wouldn't want to buy more than two phones anyway," said Allen who owns one iPhone for himself and one for his son. "But when Apple said you can't, you feel -- Hey! Maybe I will!"

michelle.quinn@latimes.com

Times staff writer Alex Pham contributed to this report.

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