Apple and the Sweet Agony of Success
Jun 23, 2010 5:00 AM PT
Things couldn't be going better for Apple. At press time on Tuesday, its shares traded at US$273.85, up $3.68 in volatile trading, on a day when the Dow was down 148.89 and the Nasdaq was down 27.29.
Meanwhile, iPad sales hit the 3 million mark.
Further, demand for the iPhone 4 has been so strong that Apple's plain sold out and has had to push back fulfilling pre-orders for the device.
There's a downside to this litany of praise -- Apple's reported to be suffering from a shortage of displays for the iPhone 4, and both its and AT&T sales systems crashed because of the volume of iPhone 4 pre-orders last week. But those are good pains to have, the kind that can only enhance Apple's standing in the market's eye.
By extension, that means Apple shares will remain desirable, and for investors, that's always a good thing.
iPad Keeps Burning
Demand for the iPad seems to be accelerating -- Apple had sold two million iPads in the first 60 days, which means the third million was sold in only 20 days.
Apple said developers have created more than 11,000 new apps for the iPad.
As long as demand for the iPad remains strong, Apple shares are likely to at least hold their prices.
iPhone 4 Love Hurts
Meanwhile, burgeoning demand for the iPhone 4 is creating yet more trouble for Apple.
Apple has reportedly been canceling some iPhone 4 pre-orders as well, while AT&T has simply stopped taking orders and told anyone who hasn't pre-ordered that it shouldn't expect to see any iPhones in stores until June 29. Cupertino also is said to have pushed delivery of some pre-ordered iPhones back even further, from July 2 to July 14.
Now, there are reports that LG Display, which makes the iPhone 4's Retina Display screen, can't keep up with demand. Ashok Kumar, managing director and senior technology analyst at Rodman & Renshaw, wrote in a research note that the screen shortage has cut initial iPhone 4 shipment expectations of 4 million in half.
"Apple is definitely supply constrained on the iPhone 4," Brian Marshall, an analyst at Gleacher & Co., told MacNewsWorld. However, this situation won't last. "Within six to nine months, Apple will probably source about 20 million screens a quarter if needed," Marshall said.
That's what investors need to hear. A crimp in the supply line that leads to reduced sales isn't going to be good for AAPL's share prices.
Apple will sell at least 40 million iPhone 4s in calendar 2010 and 50 million in calendar 2011, Marshall predicted.
The Looming Threat of Android
Although demand for the iPhone 4 is strong, Apple will need to watch its step because of the increasingly strong competition from Android smartphones.
"The HTC Evo and Incredible are selling so well that Sprint and Verizon were caught off guard," Jim McGregor, chief technology strategist at In-Stat, pointed out.
The Evo has consistently sold out since it was launched earlier this month and accounted for the best sales day Sprint ever had. The Droid Incredible is carried by Verizon, which also carries the Motorola Droid.
Android has taken market share from every other mobile device operating system in the mobile Web arena, according to Quantcast. Android particularly impacted devices running the iPhone OS. Year over year until May, Android devices gained 12.2 percent of market share, while the iPhone OS lost 8.1 percent of market share. Quantcast predicts Android will continue to make inroads into the market.
"The best second choice for a smartphone is the HTC Incredible on the Verizon network," Gleacher's Marshall said. "A lot of unhappy AT&T customers are considering switching to that if an iPhone doesn't find its way onto Verizon within six months."
However, that won't affect Apple's overall earnings much because 70 percent of iPhones today are activated abroad, Marshall pointed out.
Still, investors would be wise to factor Android devices into their calculations.
"The Android platform is a steamroller, and rightfully so, because it's the only independent third-party solution out there," In-Stat's McGregor remarked. "When Apple refuses to accept apps unless they use its software development kit, that will put off the large independent software vendors and they'll turn to Android."
Perhaps it's time Apple heeded analysts' calls and put a device on Verizon's network as well.
Vaya con Verizon, Senor Jobs
"I firmly believe Apple needs two carriers in the United States," Gleacher's Marshall said. He expects Cupertino will offer the iPhone on Verizon early in 2011.
Getting an iPhone on its network could mean big bucks for Apple.
"We estimate Verizon could sell 9 million iPhones in calendar 2011," Ben A. Reitzes, an analyst at Barclays Capital, wrote to investors. "Every 1 million iPhones equates to over $500 million in revenue and over 25 cents in earnings per share."
Apple is likely to begin production in the fourth quarter of calendar 2010 of a CDMA-based iPhone that will be put on the Verizon network in the first quarter of 2011, Reitzes said. Such a device could also be offered to carriers in Asia, he added.