Apple probably sold 200,000 of the devices in the quarter that ended in June, he said. Some pundits had been predicting sales as high as 700,000.

AT&T said that it activated 146,000 of the phones in the first two days of the sales agreement. "There is no upside surprise on the number," Shannon Cross, an analyst at Cross Research, said of AT&T's initial iPhone activatations. What's more, demand for the iPhone has had a "significant decline'' in the past 10 days (following its June 29 debut), according to CIBC World Markets.

"We have noticed decent inventories at stores, and thin demand at best," analyst Ittai Kidron wrote in a note. "Among the stores we visited, most visitors were not looking at the device, and only a very small subset bought it.''

CIBC wouldn't be surprised to see AT&T and Apple step up their marketing efforts, notes [url=http://ce.seekingalpha.com/article/42050?source=feed]Seeking Alpha[/url]. Firm's channel checks suggest Apple is actually looking to introduce a 3G version of the iPhone for the U.S. market in November, ahead of the holiday season and earlier than currently expected.

Recent survey of iPhone buyers suggested that the key shortcoming of the current device is its poor data connectivity [EDGE network], notes Seeking Alpha. This isn't a surprise and Apple's CEO Steve Jobs admitted the iPhone's cellular connectivity can use an improvement. CIBC now believes the "improvement" could come soon.

Shares of Cupertino, California-based Apple dropped US$4.75 to $138.95 at 10:10 a.m. New York time in Nasdaq Stock Market trading. Earlier today, they fell to $136.55.

However, a Baltimore News [url=http://weblogs.baltimoresun.com/business/appleaday/blog/2007/07/market_overreacts_to_iphone_sa.html]analysis piece[/url] says the market has overreacted to the iPhone activation news.

"The iPhone did not go on sale Friday, June 29 until 6 p.m. local time in each U.S. time zone," David Zeiler writes. "So the first two days of sales was more like a day and a half, if that. Second, and much more importantly, we’re talking about iPhone activations here, not actual sales. Have people already forgotten the uproar over AT&T’s slow activation of the iPhones in the first few days? For many iPhone buyers the process took just minutes, but large numbers could not get their iPhones activated for hours or even days. And remember, too, that people who bought on Friday night didn’t even have a full day to get activated."

He adds: "A poll on the Gizmodo Web site taken the week after the iPhone went on sale showed 33 percent of the respondents still not activated with 13 percent saying activation took 'a day or two.' While Web polls by nature are unscientific, they frequently will give you a ballpark idea of what’s going on. If 46 percent of iPhone buyers could not get activated until Sunday or later, that would mean Apple and AT&T actually sold something like 270,000 iPhones. The actual percentage probably is significantly lower, but if just 25 percent of the activations were delayed past the first two days, that would bring us right back to the original estimate of 200,000 iPhones sold."