Countdown to new iPhone: 1 day
SAN JOSE, Calif. (AP) - July 10, 2008 To sustain that momentum and keep fickle consumers and Wall
Street happy, the company needs a dramatic second act with the next
generation of iPhones, which roll out Friday with faster Internet
access and lower retail prices.
But even with Apple's untouchable image in the eyes of the
Macintosh faithful, there are no guarantees against a letdown for
the company or its volatile stock.
After all, Apple has stumbled before in its foray into the
cellular business, with a poorly executed price cut two months
after the iPhone launch that left many early buyers fuming. And now
that it's a significant part of the wireless market, Apple faces
some of the same threats as more-established handset makers.
Among those pressures: intensifying competition and the
uncertainty of a fractured market with many big players. There's
also the risk that even with Apple's sparkling reputation, the
iPhone might become so widely available that it loses some of the
cachet that inspires buyers to wait in lines outside stores.
No one disputes that Apple and Chief Executive Steve Jobs have
rattled the cell phone industry with the iPhone's design and
features, which are furiously being copied by other handset makers.
And Apple appears on track to meeting its sales targets for the
iPhone - essential to appeasing investors.
However, unlike with the iPod, which became a blockbuster thanks
partly to the device's tie-in with the iTunes music service, Apple
is wrestling a crowded field of entrenched competitors with the
iPhone.
That means Apple must maintain the iPhone's cool factor as rival
handset makers race to catch up. The landscape could look even
tougher after new types of phones and applications emerge with
Google Inc.'s upcoming Android mobile operating system.
"It's something that's still probably overlooked - people
aren't thinking that the iPhone is a product that could get
commoditized. People have made the assumption that it will continue
to generate strong margins," said Andy Hargreaves, consumer
electronics analyst with Pacific Crest Securities. "But you have
to start thinking about it."
Apple declined to comment.
The iPhone is a small part of Apple's business - only 5 percent
of its overall sales in the latest quarter. Macintosh computers and
iPods typically generate 75 percent of Apple's revenue.
But iPhones are hugely profitable. By some estimates, Apple
stands to make between $100 and $400 on each new iPhone sold,
depending on the model and wireless carrier.
Investors have put down big bets on Apple's plans, pushing the
company's shares up from $120 in March to around $180 today, mostly
on anticipation that Apple will blow through its sales projections
for the iPhone.
Put another way, though, anything short of a blowout could slam
Apple's notoriously volatile stock.
"To keep the stock price up, they'd have to do well, very well,
amid high expectations - it's a very tough stock," said Shaw Wu,
an analyst with American Technology Research.
Apple has a target of selling 10 million iPhones by the end of
this year. It's more than halfway there, having sold 6 million of
the original iPhones before the supply ran dry in May.
But some investors question why Apple hasn't increased its
projections, even with two price cuts on the iPhone and the
technological improvements in the new version - which is being
launched in 22 countries, soon to expand to 70.
In the U.S., subsidies from carrier AT&T Inc. mean that the
price for an 8-gigabyte model has been slashed from $599 when the
iPhone launched last year to $199 for the new models launching
Friday. A 16-gigabyte model is set to cost $299.
"If the bar is so low that in the next 12 months Apple will
only sell another 10 million iPhones at the $200 price point, I
would not consider that to be a success," said Trip Chowdhry, an
analyst with Global Equities Research. "I would consider that to
be a complete disaster. At that price point they should have sold
20 million or 30 million units, and I don't think they can sell
that many."
Apple will likely make as much money, if not more, on each
iPhone as it did with the original models. The difference is that
now wireless carriers must pay Apple heavy subsidies to sell the
iPhone, and they make up the remainder with higher service charges.
However, wireless carriers also are freer to determine prices
for the iPhone hardware - including giving away the phones, as some
overseas carriers are doing, when customers lock into certain
service contracts. A free iPhone? That could dilute the brand -
making the device feel more like other cell phones - even if the
expensive contracts help Apple retain an element of exclusivity.
To keep buyers excited, Apple has upgraded the iPhone to work on
so-called 3G, or third-generation, wireless networks and improved
its support for Microsoft Corp.'s widely used Exchange corporate
e-mail program.
Apple is also allowing third-party developers to build
applications for the iPhone. It's critical they create relevant
programs for corporate America if Apple is to steal a lot of
customers from its two biggest phone competitors: Research in
Motion Ltd., which makes the BlackBerry, and Palm Inc., which makes
the Treo.
Although Apple has less than 1 percent of the overall cell phone
market, it has 19.2 percent share in U.S. smart phones, which pack
more functions. That put it ahead of Palm, which had 13.4 percent,
but far behind RIM's 44.5 percent, according to research firm IDC.
One key question is whether Apple's improvements in version two
are enough to satisfy the enormous expectations of Apple die-hards.
At least some who shelled out several hundred dollars for the first
iPhone say they're irked to see the devices now coming out for much
less - though of course, they still plan to shell out for the new
one.
"The problem is the price keeps dropping ... and the early
adopters feel like they've paid the most," said Ed Ho, 40, a
co-founder of a mobile music company in Palo Alto who bought the
most expensive iPhone when it came out and plans to do it again.
"That leaves you with some distaste."