from Catherine Horner of Theflyonthewall.com
The iPhone is Ringing: How Will Investors Answer?
If there is life on Mars, they've probably heard of Apple Inc's (AAPL) new iPhone, due to be released this Friday. The iPhone, which since its unveiling at the 2007 MacWorld Conference this past January, has been making a splash to rival that of Niagara Falls, is set to revolutionize the market for personal technology devices. A cell phone, iPod music player, and Internet browser are all unified within the sleek 4.8 ounce body. What are the main attractions of the iPhone, the reasons people started lining up on Monday eager to shell out $500-$600? The main catch seems to be the 3.5'' multi-touch LCD screen. Of course, eight hours of talk time, 24 hours of audio playback and a battery life longer than any other 'smartphone' also hold some appeal to potential buyers. It would take quite a while to list all of the iPhone's special features -- to the Apple engineers' credit they're extensive and to Apple's marketing credit, most of the civilized world could probably recite the complete product description in their sleep.
Where will the escalating hype of the last few weeks leave things? That's to be determined, but Apple and partner AT&T (T), the sole service provider for iPhone, are expecting thousands of loyal and eager iFans to line up by the thousands on Friday to purchase one. Apple declared that they expect 200,000 sales in the product's first two days on the market, with another 3M predicted for the second half of 2007 and a lofty 10M in 2008. However, the iPhone will primarily be sold only in Apple and AT&T retailers. That limitation, paired with the fact that all potential buyers must subscribe to AT&T service, and potentially face high termination fees should they leave current providers, make 200,000 sales in two days a tall order. Furthermore, the AT&T iPhone plans, released earlier this week, aren't cheap either -- ranging from $60 to $100 with a $36 activation fee. And to promote the loyalty of the first iPhone customers, AT&T will charge a $175 termination fee should a user decide to break the mandatory two-year contract necessary with an iPhone purchase. This is usually a way for providers to recoup profit lost through device subsidies and rebates, neither of which applies to the iPhone. It seems that neither Apple nor AT&T fear scaring away customers with additional costs.
In the end, cost may well be the arrow in iPhone's heel. Already there is talk from test-users of room for improvement, such as faster Internet and access to corporate email systems, most of which currently utilize Research in Motion's (RIMM) Blackberry, iPhone's main competitor. With Apple known for quickly releasing new and improved products for less, as they have done with iPod for the past six years, many consumers may put buying an iPhone on hold. So what would that mean for Apple? Trouble. Apple shares have soared 40% since iPhone's conception, reaching an all-time high of $125.09 on June 18th. However, Apple's aggressive marketing has placed itself under a microscope, meaning the smallest setbacks could send Apple stock plunging, a volatility evidenced by a late May scare when rumors of production delays sent Apple stock plummeting 4% in a matter of minutes.
Ultimately, Apple may have tried for too much, too soon, considering the task at hand. Trying to completely eliminate the separation of cell phone, computer, and iPod as established in the constitution of personal technology, it seems more than a tad overambitious to claim perfection on the first attempt. All the hype Apple has created may well end up magnifying initial flaws that, were Apple not proclaiming iPhone the Achilles of the technology world, would be completely expected and accepted. However, with expectations sky-high, minor flaws could spell disaster for Apple's future. But who knows, perhaps the doubtful among us will be proven wrong.