The self-proclaimed "anti-Cramer," Doug Kass anchors Street Insight's "The Edge," a diary about stocks and investing. As a dedicated short-seller, Kass can seek out the bear market in any environment. This week, his target was Apple ( AAPL). He discussed questions about the iPhone, the company's one-trick-pony routine, why he's not short (yet) and the bruises on its earnings report.
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the reviewer was in an area of the Moscone Center where reception is less than ideal." 5. Lack of keyboard makes typing tedious. This is an area of big risk/big reward. Will no keyboard play in emailing and phone dialing? As the New York Times writes, "The iPhone is not, however, a BlackBerry killer. The absence of a physical keyboard makes it versatile, but also makes typing tedious. Instead of raised alphabet keys, you get virtual keys on the screen. They're fairly small, and of course you can't feel them. So typing is slow going, especially for the fat of finger." Previous experiments with touchscreen keypads have not been successful in the handset industry. A sealed device has limitations. There is no flashcard slot, the battery is sealed (and non-removable), and the consumer is locked into Apple content. Particularly of concern to me is the sealed battery. The new iPhone's battery charge -- Apple has promised five hours of talk time and 16 hours of music playback -- will be challenged by heavy usage. Because I'm playing music on the device, using the touch screen and actively using its operating system, I always travel with an extra battery for my Treo. You can't do that with the iPhone. Apple's iPhone might be too U.S.-centric The iPhone is only 2.5g. That's a fascinating but risky choice. It is hard to understand why the choice was made. Does Apple think WiFi is adequate for high-speed connectivity? If 3g takes off and some killer applications are developed around it, this will be a reasonably big negative for the coolest phone sitting on the shelves, even though it's not 3g and it can't do all the high-data-rate stuff a portable device is meant to do, including simple Web surfing with reasonable speed. (And it seems like Apple has a great Web browser on the handset, making the decision even stranger.) 6. A June introduction might be challenging. It is interesting to note that reviewers, at most, were given less than an hour with the iPhone. I suspect that in certain cases the cell-phone service was not even enabled, because the product is not yet FCC-certified, so reviewers have limited feeling on how it works in practice under real-life conditions. The question of whether or not the device is ready for prime time has to be asked, and I wonder whether Apple felt so much pressure to be innovative that it innovated a lot of stuff that could end up less than it was cracked up to be. For now, Apple plans to produce about one million units per month beginning in April 2007. I am told the product is about five weeks away from completing the FCC approvals process and then will enter the Cingular testing queue at that time. Software glitches and usage quirks during the testing process could develop, even though Apple has tested the product internally. This testing phase is rigorous, and almost half of higher-end models require changes that result in product delays. 7. Will competitors sit still? I expect that in the fullness of time, Apple's handset competitors will strike back with advanced features and lower selling prices. Indeed, yesterday T-Mobile announced the release of a white version of the BlackBery Pearl smartphone. The Pearl is a more broadly distributed device than the iPhone, and its price has been slashed from $199 to $149 per unit. There will be other compelling competitors as well, such as the LG KE850. Unquestionably, many other innovative smartphones will follow in these footsteps.
Tuesday and Wednesday -- which are now coming to the surface -- I expect some Wall Street downgrades today (J.P. Morgan downgraded Apple to neutral from overweight, citing soft Macintosh shipments and ever-increasing expectations) and for the stock to begin giving back the hype associated with the MacWorld announcement. (In pre-market trading Thursday shares of Apple were down 1.3%.) Many were critical of my concentration on the iPhone's prospects in these columns. "What about Apple's MacIntosh success?" was a common refrain. What about MacIntosh? Units only rose by 28% year over year (1.6 million units vs. Street chatter of 1.8 million-plus), with most expecting 35% to 45% growth! ( Goldman Sachs' model was for 37.4% growth.) The hubris of Apple has been well documented. As I have written over the past week, I remain skeptical regarding the general assumption of a seamless transition into the iPhone's uber-growth forecasts during 2007 and in the market's robust reaction to the iPhone's introductory announcement. The competition will not be standing still. It is inevitable that companies like LG and Samsung, which has its own NAND supply, will bring on cheaper products with similar functionalities and possibly even better displays -- and unlike Apple, open systems. Consider these competitive new market entrants in the handset and MP-3 player markets. Finally, last Tuesday's announcement also runs the real risk that both the handset industry's smartphone and Apple's iPod markets freeze up a bit (as demand wanes) over the next two quarters as consumers await the iPhone.