New Apple iPhones come loaded with expectations
Last Updated: Thursday, July 10, 2008 | 10:06 AM ET
The Associated Press
Apple Inc. needs a dramatic second act with the next generation of iPhones, which roll out Friday with faster internet access and lower retail prices, to sustain its momentum and keep fickle consumers and Wall Street happy.
But given its history, there are no guarantees against a letdown for the company or its volatile stock.
The Apple iPhone 3G is to be launched July 11. Apple says it combines the features of a phone, an iPod and an internet browsing device. 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.
It's clear that Apple has rattled the cellphone industry with the iPhone's design and features, which are being copied by other handset makers. And the company appears on track to meeting its sales targets for the iPhone — essential to appeasing investors.
But the iPhone is facing a crowded field of entrenched competitors, which means Apple must maintain the phone's cool factor as rival handset makers race to catch up.
"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 five per cent of its overall sales in the latest quarter. Macintosh computers and iPods typically generate 75 per cent of Apple's revenue.
But the phones are hugely profitable — as much as $400 US on each new unit sold — and investors have pushed the stock to around $180 a share from $120 in March, betting that the new phone will beat sales projections.
So 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, " said Shaw Wu, an analyst with American Technology Research.
Apple hopes to sell 10 million iPhones by the end of this year. It's more than halfway there, selling six million of the original model 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, including Canada.
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 outside 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.
