iPhone Hackers Lend Apple a Hand

When European sales are subtracted from the difference to account for phones being used on Deutsche Telekom's (DT) T-Mobile network, O2 and Orange, Sacconaghi estimated that more than 1 million units are either sitting on store shelves or have been unlocked by hackers.

RBC's Abramsky estimates that 25% to 30% of all U.S. iPhone sales and as much as 40% of European iPhone sales are sold to hackers, which addresses the "missing" iPhone problem.

"Unlocked sales, though a headache for carriers, are positive for Apple and in our view bode well for global iPhone demand," said Abramsky, adding that further international demand in countries in which Apple has not yet launched will help the company exceed its 10 million goal.

"The number of unlocked iPhones has been really tough to track down effectively," argues Charles King, principal analyst with Pund-IT, an information technology industry analysis firm. "Apple hasn't really offered any guidance on that, and it's very hard to parse out where these iPhones could have gone, as many of them are probably sitting unsold somewhere."

The consensus, though, is that the practice of cracking the iPhone's software code is ramping up. The proliferation of unlocking programs and the increasing ease of use have made software unlocking an accepted practice among users.

Cody Overcash, the co-founder and co-owner of modmyifone.com, a site dedicated to altering the iPhone's software, said his Web site saw a 20% traffic increase from the daily average for the previous month on Feb. 13, the day after a free downloadable program called ZiPhone circulated the Internet, enabling users to open the software on their phone with just a single click of a mouse.

"There is no question that third-party unlocking is boosting iPhone sales worldwide," says Overcash. "With between 20% and 40% of all iPhones being sold unlocked, Apple cannot deny that unlocking equals iPhone sales. [Apple] should be back behind closed doors cheering for the instant advancements in unlocking."

Overcash says that modmyifone.com has seen more than 20,000 downloads of the latest software unlock by the site's readers, a staggering number considering Overcash's site is just one of many dedicated to retooling the iPhone.

Apple's Cook said during a Goldman Sachs conference that the company understands that there will always be a level of hacking, but that "having people stepping over each other for the phone isn't a bad thing." He added that the company is fighting back with software updates, continuing the game of cat-and-mouse with hackers, but that the best remedy would be to expand into more geographical areas.

Moving into new markets is something analysts also think will spark iPhone sales. During its annual shareholder meeting, Apple said it will introduce the phone into India and China by the end of 2008. Exactly whom Apple would partner with and how they'd join overseas are critical points, King says.

"The China and India markets are considered to be the future goldmine for IT vendors, and the adoption of new consumer technologies is very rapid," he adds.

Another bump in sales could come in June, when Apple will roll out the next iteration of the iPhone's software that will allow users to access email through Microsoft's (MSFT) Exchange servers.

The update also will allow users to download third-party applications to run on the phone, including games from Electronic Arts (ERTS) and Sega as well as business applications from Salesforce.com (CRM).

---

Know What You Own: Apple operates in the technology sector, and some other stocks in its sector include Research In Motion (RIMM), Hewlett-Packard (HPQ) and Intel (INTC). These stocks were recently trading at $97.33, $47.31 and $20.18 respectively. For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section, and to stay up to date on the technology sector, don't miss TheStreet.com's Business Technology section.

>To order reprints of this article, click here: Reprints