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What Icahn Knows About the New iPhone: Channel Control

Stocks in this article: AAPL DELL

NEW YORK ( TheStreet) -- Carl Icahn gave up his position in Dell (DELL) Wednesday and bought himself some Apple (AAPL).

This is the kind of thing that makes Icahn, Icahn.

First, the Dell thing was done. By this week, Icahn found himself battling over pennies per share, against a group that had the votes to deny him even the pennies. He's pushed the price up, he's got a gain, so cash out.

Icahn informed Dell's board he held $1 billion of its shares in March, when it was selling at about $13.25/share. The current price is $13.85. In math class, we call that a profit.

So what about Apple? Apple has become a battleground stock with fairly predictable patterns. When Apple makes a market move, the shares go down. When it makes a boardroom move, the shares go up.

This means there is action in Apple. Its 52-week low is $385/share. Its high during 2013 is about $550/share. So the current price of $468 is in the middle of its trading range.

Then there's something Icahn knows, that all the analysts dismissing the iPhone 5C and 5S models are ignoring.

Apple controls the channel. (That's short for the sales channel, or the distribution channel. The channel is how phones get from manufacturers to consumers.)

If you're going out to get a phone, chances are you're going to a carrier-owned store. A year ago, those stores were pushing Android phones. With the new announcements, they're pushing iPhones -- all of them.

The key is in the pricing. Just go by the Apple store's official 5C page. You will be getting the new phone for as low as $99, with a wireless plan. That's the full retail price out of the box. They're asking $550-$650 for the same phone, unlocked.

That's a really big spread. It creates a huge mark-up for the carriers carrying the phone. If a two-year wireless plan on a single phone costs just $50/month, that's $1,200 going to the carrier for a $450 subsidy. The pricing is designed to discourage buyers from thinking differently.

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