Apple (AAPL) sold more than one million of its new iPhones over the weekend. The costs of those handsets could have been $300 million, and that does not include the two-year calling plan from AT&T (T). Together, the handset and service commitments made by consumers should be between $500 million and $1 billion. Those figures could easily stretch to $3 billion or $4 billion by the end of the summer, even if the pace of sales of the iPhone drops considerably.
The success of the new phone is either a sign that customers have the cash to help push up consumer spending, or they are willing to return to their leveraged habits, habits that helped bring on and then exacerbate the recession. It may take months to know which of the two possible paths the economy is taking.
The sales of the iPhone are certainly a sign that the consumer has become intrepid. He has been unwilling to part with money for several quarters now. An especially well-made, well-branded, and well-marketed product has changed that. Buyers could have resisted those enticements, but they did not.
It is too bad that the no one knows where customers got the money to buy their iPhones and whether they will be able to pay that debt and the cost of the AT&T subscription plan. The money may have been borrowed. It is borrowing the consumer may not have been able to afford. AT&T subscriber default rates over the next few months will be worth watching. iPhone purchasers may have overextended themselves.
The other and more optimistic case is that consumers have saved money long enough and kept household expenses down so that they can afford a new modestly priced consumer electronics device. But, that sounds un-American. No one pay cash anymore if they can use leverage. The recession has probably not taught people a thing.
Douglas A. McIntyre
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