Prepare for the iPhone Backlash

So how big is Apple's window of opportunity to sell the first iPhone with its limited specification range? Its spectacular display technology and unique software capabilities will do much to mask the hardware shortcomings -- but only if power consumption is tolerable and the second generation of iPhones arrives in time.

To avoid a backlash, iPhone should deliver at least eight to nine hours of battery life for moderate mixed usage (with WiFi turned off most of the time). Mixed usage in this context would be, for example, 60 minutes of voice calls, 45 minutes of browsing and 30 minutes of music listening. This is below what competing smart phones can deliver, but I'm making allowances for the dazzling display. Anything less than this would likely create negative buzz, and that's a major danger right now.

Millions of U.S. consumers will make an exception for Apple, but European and Asian consumers won't accept less than HSDPA-quality W-CDMA support and either GPS or a better than 2-megapixel camera by the first quarter of 2008. Apple has to improve the phone specs a lot in six months, or it may find its appeal has clear limits outside of North America. That's a tight timeline, considering there will likely be a lot of things to iron out with the first iPhone, even without major upgrading. No vendor has ever attempted to launch a new hardware platform, new display technology and new operating system simultaneously. Even the most experienced phone vendors tend to stagger innovation across product generations to avoid the development nightmare of complexity piled on top of complexity. Apple is locked in tough negotiations with European operators; any missteps with the AT&T launch would curtail its leverage with the already skeptical Vodafone (VOD).

I'm not sure most investors realize what a high-wire act Apple is now attempting. Yet its share price has hardly wobbled after a stunning run-up through the first half of the year. Faith in the company has been absolute, even though every shareholder I've talked to is well aware of the media backlash scheduled to ramp up around June 18.

The iPhone-fueled Apple run has coincided with the Nasdaq ramp-up -- a rare coincidence where a specific product launch matches a wider telecom/tech rally. This serendipity has created a unique setup for massive volatility over the next month.

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