Seeking Alpha
Long/short equity, special situations, momentum, research analyst
Profile| Send Message|
( followers)  

Highly respected Consumer Reports announced that it can not recommend iPhone 4 because of the reception weakness caused when the phone is held in the lower left corner. Consumer Reports mentions that this is unique to the iPhone 4 model compared to past iPhones and it is also unique to the AT&T (NYSE:T) network as no other phones suffer from like reception issues. If the market was at a high this kind of news would cause AAPL to sell off $10. But because the market is near the low end of its trading range the stock is able to overcome the negative news. A marketwide focus on low valuation is helping AAPL on a day like today.

I have four thoughts on the matter:

1. This is nothing new. Anyone with an iPhone 4 has dealt with this. Consumer Reports is merely releasing an independent analysis that is hitting Wall Street today.

2. Nobody is in a hurry to return the phone. Apple users are confident that the problem will be fixed. Users know that Apple will do whatever it takes to resolve this, even if it means giving everyone a new phone. There is still a possibility that this can be fixed with a software update and we know it gets fixed with the iPhone 4 Apple cover. In the past the Apple ecosystem has taken care of its customers better than any other brand out there; in return Apple receives a high level of consumer loyalty.

3. The Apple model of dealing with problems is that they don't tell us anything until it is resolved. Look no further than the Steve Jobs liver transplant for a precedent. Short term silence might scrape the stock but the most important thing for investors is...

4. These reception issues are not affecting sales. iPhone 4 is sold out everywhere. In addition, Apple is releasing a new Wi-Fi enabled iPhone in China. iSupply reports that the iPhone is growing 130 percent year over year but still commands only 3 percent of global cell phone market share. With so much room to grow, it is going to take a major debacle by Apple to dampen investor enthusiasm. Does this qualify as a major debacle? Only if you think the problem won't get fixed. Otherwise, this is still a buying opportunity at the low end of Apple's trading range in anticipation of earnings. To me, the 3 percent global cell phone market share statistic is the single most important bit of data on Wall Street. Apple is set to go on a market share ride.

Disclosure: Long AAPL

Source: Investment Ramifications of iPhone 4 Reception Issue