Editor's note: In this edition of "360 Degrees," Scott Moritz, Tero Kuittinen, Cody Willard and Barry Ritholtz weigh in on the iPhone, whether it can live up to the hype, and what it might mean for Apple and the telecom business as a whole. Catch the latest insights on this developing situation in Columnist Conversation.
has always believed that offering a wide variety of opinions and viewpoints -- rather than a monolithic "house view" -- helps readers make better-informed investment decisions. In that spirit, we bring you "360 Degrees," a feature that takes advantage of our varied stable of
contributors, who offer analysis of stocks and the markets from all angles.
iPhone's $200 million Jackpot
By Scott Moritz
6/25/2007 7:20 a.m. EDT
iDay will put a $200 million revenue ka-ching on the end of this quarter.
The temps are trained, crowd control measures are in place and the stage is all set for Friday's debut of the huge iPhone. If Apple can pull it all off, this most orchestrated of product introductions should manage to move nearly 400,000 phones out the door on the first day.
Follow this math: There are 162 Apple stores and 1,800
shops -- so exactly 1,962 sales outlets will be pushing the iPhone.
final changes to the iPhone made last week -- including an improved battery and glass instead of plastic screens -- it's fair to assume the phone has just recently been put into full production. This seems to rule out the notion that there are warehouses stuffed to the ceiling with pallets of iPhones.
This would also support the speculation that a limited iPhone inventory needs to be allocated. The current rumor is that each store is being rationed somewhere between 100 to 250 phones.
So here's the plan: After closing the stores at 4:30 Friday afternoon, the doors will open again at 6 p.m. to an iPhone wonderland. The special extended-hour sales session will end at 10 p.m. local time.
All the campers, long-line sitters and the rest of the willfully determined soon-to-be iPhone owners will likely clean out the shelves in the allotted time. That, of course, assumes that each sale takes 10 minutes or less, and that each store has at least eight clerks ringing the register.
An AT&T representative declined to offer any numbers, other than to say the company is adding 2,000 temporary workers to help out. The representative added that each store will have "a healthy supply" of iPhones.
So with 1,962 stores and let's say 200 phones per store, Apple stands to sell some 392,000 iPhones, I can now reveal. With each phone selling for an average price of $550, Apple stands to take in $216 million in revenue on the evening of June 29. And that's not including online sales.
To put that in perspective, Wall Street analysts expect Apple to post third-quarter revenue of $5.28 billion -- which works out to around $59 million a day. So the iPhone alone could do more than triple the revenue the company typically brings in in a given day.
Some analysts have calculated that given the iPhone's
lush margins, every 1 million iPhones equals 6 cents per share bottom-line profit. So June 29 looks to be worth $2 million in profit, or about 2 cents a share.
Not a bad way to close the books on a big quarter.
To see other stocks that might benefit from Apple's big day, please click here for a Stockpickr portfolio.
Want more? Check out TheStreet.com TV video.Scott Moritz discusses Apple's big day, and what to expect.
Apple Tries to Spawn New iConsumer
By Tero Kuittinen
6/25/2007 1:34 p.m. EDT
As iPhone testers get increasingly leaky, a new picture of the device is coming into focus -- and it is defined by an almost perverse hostility toward mobile operators.
Apple has apparently rejected both picture-messaging and mobile instant messaging, and data transfer speeds over the mobile network seem to be just as slow as its use of last-generation hardware implied.
The iPhone will thus be actively pushing consumers away from using mobile infrastructure and value-added services; it looks like a device largely driven by Wi-Fi. How this plays out is going to be fascinating, as the number of U.S. consumers using Wi-Fi on their phones is currently far below 1%.
Over the past two years, mobile operators have carefully nurtured two major themes in messaging: MMS and mobile instant messaging. MMS enables phone users to snap photos and send them instantly to friends and family. Even people with relatively low-end phones without cameras can receive these photos.
This service was designed to be a sequel to the massively popular text-messaging service that swept the mobile world a decade ago. Its early uptake was slow, and when the iPhone was being planned two years ago, negative buzz about MMS dominated industry discussion.
But over the past 18 months, MMS has started to take off. As the global pool of consumers equipped with at least 1.3-megapixel cameras in their phones has expanded to hundreds of millions, photo-messaging has increasingly turned into a mass-market phenomenon among 15- to 30-year-old consumers.
The key to MMS is its universality. It is supported by all major operators from
and all major phone vendors from
. Its current momentum is built on its democratic appeal. You may need a 2-megapixel camera phone to take decent pictures, but your mom or schoolmates can receive them with their cheapie phones.
With the iPhone, you can email photos, but most people don't have email in their phones. The absence of MMS cuts off 90% of U.S. mobile subscribers; low-end and midrange phone users will not be able to swap photos with the iPhone elite.
The underlying philosophy of both text-messaging and photo-messaging has always been to make the experience as universal as possible. Apple's philosophy is fundamentally exclusive: Buy our product and lock out the losers from your mobile photo loop. Implementing MMS would have been trivially easy; dropping it sends a message.
Back in 2001, this kind of exclusivity worked wonders in the music-player business, where no established market existed when the iPod launched. Apple built its own garden and walled it up well, resulting in phenomenal success. But there already is a global mobile handset market with well-established road maps and feature profiles. The iPhone will be willfully out of step with the billion-unit phone market.
The second messaging product that is important for mobile operators is mobile instant messaging. Service providers have spent a lot on marketing the concept of hooking up to popular IM systems over the mobile handset. The absence of mobile IM in the iPhone is another insult to mobile operators.
Wi-Fi: That's Why
Apple has shown a curiously strong focus on "full Internet" in its
ads, which show the iPhone user caressing the
New York Times
front page. Titillating pans across the page seem to promise intoxicatingly intimate access to information, but the ad does not show what happens if you click a link.
The iPhone testers seem to confirm that iPhone's Edge access speed is just as weak as you'd expect. This technology not only tops out at 200 kbps (which most users do not reach in real-world conditions) but also has serious latency problems. A 20- to 30-second wait per relatively graphics-light Web-page download using Edge might turn out to be a pretty zippy performance for the iPhone.
So why is Apple highlighting Web-browsing so prominently? Why the disdain for MMS and mobile IM? Probably because the company intends to drive consumers into Wi-Fi usage. With a decent broadband connection, browsing and video-streaming on the iPhone could be a dreamy experience.
Of course, the number of U.S. consumers now using Wi-Fi on their mobile phones is very small. Most people have easy Wi-Fi access only at home and the office. In these places, using a laptop or PC for Internet access is a natural option. Getting Wi-Fi access on the fly is neither easy nor cheap.
Operators such as AT&T and Verizon have been diligently crippling high-end phones for years, stripping away features such as Wi-Fi-enabled VoIP in order to protect their mobile voice and data revenue. This has left consumers largely alien to the idea of Wi-Fi phones. Several recent pieces on iPhone have touted it as a device that is coming at precisely the right moment.
How does that compute? The iPhone is debuting using mobile data technology from 2003 (Edge) while trying to usher in an era of Wi-Fi usage -- just as U.S. consumers show no signs of wide acceptance of Wi-Fi phones. I don't see how the timing is magical.
Apple has seduced AT&T into making a full U-turn in its product philosophy. AT&T is not only willing to give iPhone buyers relatively extensive Wi-Fi freedom but also is heavily marketing a device that directly undercuts its MMS and mobile IM campaigns. Flipping the biggest operator in America is a pretty dazzling feat for Apple.
If the plan to transform the upper 5% of the U.S. mobile subscribers into Wi-Fi fiends works, it might have a real impact on "average revenue per user" levels for Verizon and
by 2008. Operators are highly dependent on that top sliver of heaviest users of voice and data services.
Here's the thing: Most of these whales are corporate accounts. The majority of leaks over the past 48 hours describe the iPhone text-input system as being just the mess that touch-display text input has always been. For security reasons, corporate IT people will battle against this device to the bitter end (or until a major software overhaul).
The apparently high reliance on Wi-Fi functionality makes the iPhone a unique concept: a portable phone that is not precisely a mobile phone. The lack of high-speed mobile browsing and MMS means that this device is meant for voice calls over GSM infrastructure and data usage over Wi-Fi.
It will be a difficult combination to explain to consumers. I find it interesting that Apple has not even tried to do so; its ad campaign deliberately blurs the details about browsing speeds over different modes. Even more interesting is the way the U.S. media and Wall Street analysts have agreed to play Apple's game; most comments about the iPhone carefully airbrush the browsing speed issue out of the big picture.
The fact is that the Edge technology will deliver literally 10 times slower data access than current top 3G phones; speed may regularly drop to below 100 kbps. The performance gap of this magnitude is headline material for most products. Yet Apple and its courtiers have mostly managed to sidestep the issue entirely. Most consumer backlashes breed in swamp ponds of unrealistic expectations. Blurring the difference between Edge and Wi-Fi access only works if consumers find getting Wi-Fi access easy. I don't think that is the case.
Apple can't tap into the current pool of American high-end phone users (who are mostly email-driven and corporate). It has to create an entirely new class of consumers. This novel iCreature likes to use a Wi-Fi phone, has a separate corporate phone but is still willing to pay high prices for a personal device, does not mind missing MMS and mobile IM functionality and does not need high data-transfer speeds when outside Wi-Fi hotspots.
Such a beast seems exotic and unlikely. But Apple did manage to breed a new category of consumers in the lush confines of the iPod/iTunes garden. We can't dismiss the idea that this feat can be repeated. However, creating a garden in the middle of the mobile-phone jungle in 2007 is very different from building one in the relatively empty steppes of the music-player market in 2001.
iPhone Can't Lose
By Cody Willard
6/26/2007 5:08 p.m. EDT
I'm all about "flipping it" and supposedly trying to do exactly opposite of what the mainstream is doing. But I'm being bombarded by requests to join the hyping of the iPhone launch on Friday, with everyone from the old-media world and the new wanting commentary about what it all means and how it will all work.
Well, I feel like Bugs Bunny as I've decided that since I can't beat 'em, I've got to join 'em, especially given that I've personally gone through six smart phones and have tested out and/or trialed just about every high-end handset and major carrier service in the U.S. over the last few years.
First, let me just get it out the way -- the AT&T service is beyond horrible. The ads where the company claims they have the "fewest dropped calls of any wireless carrier" are insulting to those of us who actually suffer through trying to use the so-called "service" they provide.
Frustrated by the lack of smartphone options at Verizon, I recently switched to AT&T, even though I knew how bad their service is in my apartment in rural, er, I mean New York City.
I almost called it rural because the quality of service in my apartment in the middle of an island with an addressable audience for AT&T services of some 10 million people per day is less than the quality of service my parents get from Verizon in Ruidoso, NM, which has more deer per square mile than people.
And that's just the voice-service side of the equation. AT&T's ridiculously outdated EDGE data services, which they promise can run at speeds up to 200 kbps usually works slower than a dial-up connection to Compuserve from Albuquerque, NM, in 1995. Trust me, that was
. The EDGE ain't any faster.
The good news is that AT&T is finally getting the Cingular/BellSouth acquisitions integrated and rationalized. The debt on the balance sheets, at $55 billion, is nothing to sneeze at, but this company's going to be generating tens of billions of dollars in cash flow over the next 12 months, and they're actively ramping up spending on their wireless-network data technologies.
While I was in Dallas a month ago, I met with several suppliers to Cingular, and all were scrambling to add people to meet the scaling demand for network-building services from AT&T Wireless.
The Evolution of Macintosh
The iPhone itself is going to rock, though. Apple's packaged a great product that will be more functional and easier to use than any phone this world has ever seen. That's because they're building on the Apple software platform that's been developed for consumers for the last 30 years. Don't kid yourself into thinking that the iPhone's a new development. That iPhone, for all the hype of being a "revolutionary" machine, is really just the MacIntosh PC after 30 years of evolution.
As for the "virtual" keyboard and all the hype about whether corporate techies will allow these devices into their networks and so on, I have to tell you that if you're even thinking that will be a topic of discussion in June 2008 or, more to the point, June 2009 after the world has spent two years further developing new hardware and software add-on features to the iPhone platform, then you're completely missing the point.
Apple's going to be rolling out new bigger versions of the iPhone and other smaller versions of the iPhone. Some will be optimized for video, others for music. Some will come with keyboards, others will have keyboard attachments that fit into your wallet in case you want a hard keyboard.
And see, that's really the whole key to why the iPhone is all but guaranteed to be successful. It's a tightly controlled platform that will continue to evolve and be built upon.
Extreme Hype Creates Doubt
Will this particular version of the iPhone live up to the hype? When so much has been promised and hyped by both the company and the general public, it's doubtful. I wouldn't want to bet that this stock will pop further into the very near term. But I don't think there's nearly as much risk about the iPhone as a failure as the mainstream media, or the bears many in the MSM listen to, are promising.
From a very short-term trading perspective, I'd probably look to be long AT&T and short Apple into the actual rollout. That's mostly just a call on the magnitude of hype and the corresponding bullish sentiment relative in those two names right now.
From a longer-term perspective, I sure wouldn't bet against the iPhone platform creating some real virtues for Apple and its shareholders over the next few years.
What Does the iPhone Teach Us About Technology?
By Barry Ritholtz
6/27/2007 7:37 a.m. EDT
The reviews for the iPhone are coming in, and they are breathless.
Rather than add to the
about the gorgeous little thing, I would rather think about what lessons can be drawn from its mere existence.
I believe there are quite a few practical things to be taken away from the development and marketing of this. An education is available to those companies, corporate managements, engineers, inventors and investors who are paying attention:
1. Committees Suck: The old joke is that a camel is a horse designed by a committee. As we have seen all too often, what comes out of large corporations are bland-to-ugly items that (while functional and reliable) do not excite consumers. When a company decides to break the committee mindset and give a great designer the reins, you get terrific products that sell well. The Chrysler 300 does not look like it was designed by a corporate committee. Think of Chris Bangle's vision for BMW -- and its huge sales spike -- and you can see what the upside is in having a visionary in charge of design. Better pick a damned good one, though . . . 2. Present Interfaces Stink: How bad is the present Human Interface of most consumer items? (Leaving the improving, but still-too-hard-to-use Windows aside for a moment, let's consider the mobile-phone market: It was so kludgy and ugly that the entire 100-million-unit multibillion dollar industry now finds itself at risk of being completely bypassed, all because some geek from California wanted a cooler and easier-to-use phone. What other industries may be at risk? 3. Industrial Design Matters: We have entered a period where industrial design is a significant element in consumer items. From the VW Bug to the iPod, good design can take a ho-hum, ordinary product and turn it into a sales winner. 4. R&D is Paramount: While most of corporate America is slashingR&D budgets (and buying back stock), the handful of companies thathave plowed cash back into R&D are the clear market leaders thiscycle: Think Google, Apple, Toyota (hybrids), Nintendo (Wii). A well-designed, innovative product can create -- or upend -- an entire market. Microsoft did it with the X-box; What other companies have the ability to disrupt an entire market?
5. Disdain for the Consumer can be Fatal: As we have seen with Dell, Home Depot, The Gap, Sears, etc., the consumer experience is more important than most corporate management seem to realize. Ignore them at your peril.
What other lessons are there for companies in the business of designing products for consumers to use?