Asking Questions on Apple's iPhone

The market's response to the introduction of the iPhone has been breathtaking, especially in light of the fact that few have even had the opportunity to try to use this seemingly innovative product -- and those who have were given only between 15 minutes and an hour of time.

Let's assume that about $5 to $10 per share of pre-introduction hype was incorporated into Apple's share price before last week's iPhone announcement. Subsequent to the new product's introduction, the shares rebounded by another $10 a share. So in theory, the iPhone has contributed to about a rise of $17.50 a share, or $15 billion in Apple's market cap. (It now stands at $81 billion.)

Measuring the Bounce

In reality, the $15 billion rise in Apple's market cap is an understatement, as the product is not entirely incremental. The iPhone is intended to and will cannibalize a significant portion of the iPod sales. How much is uncertain, but at the minimum at least one-third of sales will be almost immediately lost. Doing the math would suggest that the iPhone's introduction has provided nearly $20 billion of additional market cap.

Let's now put my conservative calculation of a $15 billion rise in market capitalization into perspective.

The incremental short-term rise of $15 billion in Apple's market capitalization represents 60% of the entire equity capitalization ($25 billion) of Research In Motion (RIMM Quote), which appears to have not only a software lock-in but also an annuity-like stream of income from subscriptions.