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Apple Ripens - Harvest Time Is Here

By Richard Adhikari MacNewsWorld ECT News Network
Sep 22, 2010 5:00 AM PT

Shares of Apple hit a new high of US$287.36 in volatile trading Tuesday, only to settle back down to $283.77 by market close -- still a daily gain of 54 cents. The gain was pushed on by a wave of good news, anchored by the iPad's good reception in China and Apple's plans to sell the iPhone 4 in that country Sept. 25, not to mention Apple stellar showing in the latest American Consumer Satisfaction Index.

Apple Ripens - Harvest Time Is Here

One immediate catalyst was Kaufman Bros. analyst Shaw Wu's prediction Monday that the iPad will help Apple beat expectations for the current quarter.

In addition to Apple's having sorted out its supply chain problems for the iPad recently, the device launched last week in China to a strong reception, which may have helped bolster Wu's opinion.

Meanwhile, Best Buy has announced that it will showcase the iPad and's Kindle e-reader this coming holiday season, and Americans are playing games on iOS devices in greater and greater numbers.

However, it may not all be smooth sailing for Cupertino -- there are reports that Facebook may bring out a smartphone; Yahoo CEO Carol Bartz has predicted that Apple's iAd mobile advertising network will tank; and OpenFeint has released a social gaming platform for Android phones, which are gaining market share at iPhone's expense.

The China Syndrome

The iPad launched in China last week to an enthusiastic reception, and some analysts, like Kaufman's Wu, expect demand for the device there will provide a healthy boost to Apple's earnings.

Some are hoping the iPhone 4 will get the same reception in the Middle Kingdom when it goes on sale Sept. 25.

Apple has two retail stores in China, in Beijing and Shanghai, and plans to open two new ones (another in each of those cities) the day the iPhone 4 hits the country.

There is some doubt as to whether the iPhone 4 will prove as wildly popular in China as the iPad has.

One issue is pricing. The 16 GB iPhone 4 will retail for close to $800. and the 32 GB model for close to $900, without contracts.

"Everyone expects the floodgates to open and that Apple will see millions and millions of units flood the market," Ramon Llamas, a senior research analyst at IDC, told MacNewsWorld. "I don't think so, and here's why: The iPhone commands a price premium, and I don't think China Unicom is subsidizing the device as AT&T has done for the iPhone here in the United States."

That lack of subsidies may make the iPhone 4 too expensive for Chinese consumers, Llamas pointed out.

Further, there's a huge market for knockoffs in China, which will impact iPhone 4 sales, Llamas predicted.

Still, no one can really be sure until the iPhone actually goes on sale in China, so it's best to wait and see. The market, at least, is optimistic.

Of Retail and Gamers

Back in the U.S., another bit of good news for Apple emerged: Electronics retailers are going to switch up their mix for the holiday season to include more handheld devices, including tablets and smartphones.

Best Buy, for example, has announced that it'll expand iPad distribution to all of its nearly 1,100 stores on Sept. 26.

Separately, international games market research firm NewZoo announced that 40 million out of the 77 million Americans playing games on mobile devices do so on iOS devices.

Recall that Apple CEO Steve Jobs has previously touted the iDevice line as a gaming platform and announced that several leading game developers were bringing out products for iOS. Perhaps the iPod line will refresh its revenue stream.

Challenges to the iPhone?

The iPhone is one of the mainstays of Apple's earnings, but it's coming under increasing pressure from the competition. Not only is Android gaining ground at the expense of iOS, but OpenFeint, a social gaming platform from Aurora Feint, is adding Android game developers to its community.

OpenFeint released its platform for Android last week, and it will launch 20 games for Android in the next month.

That can only strengthen the appeal of Android smartphones vis-a-vis that of the iPhone.

Further, there are rumors that Facebook is working on its own smartphone. Could that impact the iPhone at all? And did Apple announce its Ping social music network/distribution network earlier this month because it foresaw Facebook entering the smartphone space?

"Microsoft attempted a social networking-focused phone and it failed," IDC's Llamas pointed out. "Clearly, consumers like social networking, but it can't be the be-all, end-all. And when was the last time you heard of Facebook doing hardware?" Llamas asked.

"Subscribers are already locked into a device and wireless service for two years; do they really want to be locked into a social networking site as well?" asked Chris Hazelton, a research director at the 451 Group.

"Who's to say that Facebook will be the dominant player in two years? Look at MySpace," Hazelton told MacNewsWorld.

Perhaps the advent of Android games may be a cause for concern. The possibility of a Facebook smartphone can't be ruled out, even though Facebook has denied reports it's working on one, but we'll have to wait and see what happens.

It's All About the iAds

Finally, Apple may be having problems with its iAds platform, and that's really a much greater cause for concern.

Although Apple said it had strong support for iAds from major advertisers and claimed to have locked up millions of dollars' worth of ads for this year alone on the platform, reports indicate things aren't quite as rosy as Cupertino claims.

Early customers of iAd are reported to have been dissatisfied with the tight control Apple is exerting on the creative aspects of their ads, although some, including Nissan and Unilever, are happy with their experience.

Meanwhile, Yahoo CEO Carol Bartz has predicted that the iAd platform will fail because of discontent among advertisers unhappy about Apple's policies. iAd is "going to fall apart for them," Reuters quoted the CEO as saying last week.

"I think Bartz is a little off-base with her remarks," Greg Sterling, the founding principal of Sterling Market Intelligence, told MacNewsWorld. "I think iAd may not succeed as a money-making venture, but it's brought a lot of attention and large advertiser interest into the mobile space, and has benefited many other firms which are smaller and have less credibility than Apple."

That's small consolation -- if iAd doesn't succeed as a money-making venture, what's the point? And how should investors assess its impact on Apple's earnings? Should they accept analysts' optimism about Apple if those analysts cite iAd as having a positive impact on Apple's earnings in the future?

Watch Apple's next earnings statement, which is due soon, and comb through it for references to iAd. If they are vague or don't back up Apple's previous predictions about the platform's success, be afraid.

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