Mere Whiff of iPhone Plans Sends Apple Shares Higher - TheStreet

Mere Whiff of iPhone Plans Sends Apple Shares Higher

It hits another all-time high as analysts see an expanded iPhone line in the works.
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Speculation is already swirling about how


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will turn its hot new iPhone into a line of products as successful as its iPod music player kingdom.

And already-giddy investors haven't needed much in the way of facts. Apple's shares hit another all-time intraday high Tuesday, touching $134.50 before settling back to a recent price of $133.02, up 2% on the session.

Apple itself touched off the speculation -- perhaps inadvertently -- by recently filing a patent application for a device that apparently adds voice-calling to its ultrathin iPod nano. This comes less than two weeks after the iPhone debuted with much fanfare.

By some estimates, Apple has already sold over 1 million phones. Industry watchers -- and some eager investors -- are wondering what the company will do to build on what appears to be another successful product franchise.

"We live in a world of fragmented preferences," says handset market analyst Shiv Bakhshi of IDC. "


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have responded to that fragmentation with a wide array of devices available to suit people's needs. Apple has only one device, and it's an extension of the iPod franchise."

Indeed, the iPod nano may provide a platform for the first product derived from the iPhone, says JPMorgan analyst Kevin Chang. The nano is a slimmed down version of the original iPod. It has some features of the high-end version, like the ability to store separate playlists and a scroll wheel to search for specific playlists and songs within them.

Chang envisions a lower-end iPhone based on the nano design. Presumably, it would have a smaller screen than the current iPhone model, which could limit Web surfing. The scroll wheel could be used to select phone numbers and initiate calls. The device would be cheaper than the $499 and $599 models, and hence affordable for a wider range of consumers.

To avoid cannibalizing sales of the current Nano, Chang envisions that Apple would wait until the fourth quarter of this year before launching a lower-end iPhone derivative.

Apple, however, often files patents well ahead of committing to new products. The current patent, which sparked Chang's analysis, may be a "placeholder" rather than a definitive first step toward a new iPhone.

Chang's colleague Bill Shope, JPMorgan's lead Apple analyst in the U.S., believes Apple is more likely to launch a version of the iPhone that works on a faster "3G" cellular network. A derivative of the iPod, Shope feels, would unnecessarily cannibalize nano sales. The iPhone currently uses an older version of


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JPMorgan has provided Apple with noninvestment banking securities services in the past 12 months and makes a market in Apple shares.

Richard Parower, a portfolio manager at J.W. Seligman, expects Apple to mimic its iPod product road map in developing a range of iPhones for consumers of varying purchasing power. But he expects Apple to proceed slowly and maintain its pricing power on the iPhone, as it did with the iPod.

Seligman owns Apple shares in its Global Technology Fund.

Regardless of how Apple follows up the iPhone, its presence in the handset market will inevitably force other phone makers to improve their designs, says IDC's Bakhshi.

"Apple is pushing the envelope a little more on ease of use, design and new materials," said Bakhshi. "Other handset makers will have to respond. In the end, we all benefit even if we don't buy the iPhone."

The touch screen, for example, may become standard on so-called smartphones that offer data features like email, text messaging and Web browsing.

Jim Balsillie, co-chief executive of BlackBerry maker

Research In Motion


, said in

a recent conference call that upcoming models of the most iconic smart phone may include a touch screen feature.