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Will the Feds Sour Apple's Juice?

By Richard Adhikari MacNewsWorld ECT News Network
May 5, 2010 5:00 AM PT

The U.S. Department of Justice and the Federal Trade Commission are reportedly discussing an antitrust probe of Apple.

Will the Feds Sour Apple's Juice?

This was spurred by a complaint from Adobe, whose Flash technology has been barred from certain Apple products, according to a Bloomberg report.

Whether or not the government will launch a probe is not yet certain; meanwhile, iPad sales are booming, Apple plans to charge a premium for ads on the device, and the company has snagged yet another chip company. Heat from the feds notwithstanding, it's a good time to be holding Apple shares.

A Slice of Apple Pie

Adobe sprang into action after taking a one-two combination punch from Cupertino on the chin. First, Apple rewrote its agreement with iPhone developers to lock out the use of Flash development tools, among other things. Then, Apple CEO Steve Jobs wrote an open letter hammering Flash, calling it outdated and "100 percent proprietary."

After firing back at Jobs and Apple -- via blog posts penned by executives as well as a Wall Street Journal interview with CEO Shantanu Narayen -- Adobe reportedly complained U.S. federal authorities in charge of antitrust probes.

Now, it appears Uncle Sam may launch an antitrust investigation into Cupertino's ban on using Flash in iPhone and iPad apps.

However, investors shouldn't worry, Brian Marshall, an analyst at Broadpoint AmTech, told MacNewsWorld.

"I think the risk from an antitrust investigation is hogwash," he said. "Apple has less than five percent of the handsets and PC markets. Also, application designers want to use the best technology, and Apple has that."

Dancing to the iPad's Beat

Meanwhile, Apple claimed to have sold 1 million iPads in the 28 days since the device was introduced April. It also said iPad users have downloaded more than 12 million apps from the iTunes App Store and over 1.5 million e-books from Cupertino's new iBookstore.

Developers have created more than 5,000 new apps for the iPad, and there are now more than 200,000 apps in the App Store, Apple says.

The demand was a pleasant thrill for Broadpoint Amtech's Marshall. "They hit the 1-million mark a little faster than I had expected," he remarked.

Barclays Capital expects iPad sales to exceed its estimate of 1.5 million units for the quarter ending June, and this will likely give Apple shares a boost. Another plus for share prices will be Apple's next iPhone, expected to arrive early this summer, which could feature an upgraded camera and video chat capabilities, Barclays Capital said.

Raking in the Dough From Mobile Ads

As if skyrocketing iPad sales weren't enough, Apple is reportedly planning to charge a premium for iAd advertising, which delivers ads to its mobile devices. The company will charge close to $1 million for a spot, according to the Wall Street Journal and that will go up to around $10 million for those who want to be in on the platform's launch, expected to be in June.

The normal price for a mobile ad is $100,000 to $200,000.

Apple is tempting developers by offering them 60 percent of the revenue derived from the ads. Does that mean $6 million out of the $10 million fee?

Whether or not this will help Apple's share prices remains to be seen.

The price tag is making some prospective advertisers nervous, although others are flocking to Apple's presentations for iAd, a software package Apple unveiled earlier this month that will offer ads in apps. After all, there are now more than 200,000 apps in the iTunes App Store, and Apple has sold 85 million iPhones and iPod touches -- not to mention those million iPads -- so far.

Keep an eye peeled for the reception advertisers give mobile ads on Apple devices at three times: At the launch, when excitement will be running high; one month later, when the first results begin trickling in; and three months after the launch, when quarterly results are due and ad buyers have to face their clients.

Going Vertical

Last week, Apple confirmed that it had bought Texas-based chipmaker Intrinsity, although it did not say for how much.

This is the second chipmaker Cupertino has purchased in two years; the first was PA Semi, which cost it $278 million. Intrinsity soups up ARM processors, and it reportedly helped Samsung build the speedy processor used in the iPad.

With this purchase, Apple may be trying to tighten protection of its intellectual property further.

"Sometimes when you deal with parts of the world where intellectual property rights are not held in as much high esteem as here ... the more in-house design and production you have, the more things you have in control," Tom Starnes, an industry analyst at Objective Analysis, told MacNewsWorld. "It's a good and a smart thing for a company to try to get better control over many aspects of the critical parts of their end products."

Apple may also get an edge over its competitors in chip design.

"PA Semi is a bunch of real smart people, and the Intrinsity guys are a bunch of real smart people," Starnes pointed out. "It may very well be that Apple's trying to get higher performance out of their processors than they can out of standard CMOS (complementary metal-oxide-semiconductor) techniques the rest of the world could be using."

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