By Carl HoweA number of key developments to note for Apple (NASDAQ:AAPL) iPhone watchers:
iPhone buzz 20,000 mark as critics ramp up stories
We saw roughly 200 more stories on the iPhone yesterday than Monday on Google News, with the iPhone Buzz Index hitting 21,755 Tuesday morning. The top news story was that analysts were predicting that Apple is working on a smaller, cheaper version of the iPhone they've dubbed "iPhone nano." (See below.)
I'm also noticing a lot of reporters trying to find a ways to criticize the iPhone phenomenon. For example, I'm constantly amazed at how many stories there are that continue to complain about the cost of a two-year AT&T contract with unlimited data, despite the fact that this is a common bundling practice for new handsets and that you'd pay similar amounts for Treo or Blackberry service. And the complaints about AT&T's EDGE network keep coming, with PC World claiming it's an albatross without any examination of what applications they are running that demand high bandwidth access and how those perform on the iPhone. And finally, the rundown wouldn't be complete without articles breathlessly describing an iPhone-killer, in this case, a Linux-based phone. The irony of all this is, of course, that the more articles that reporters write using the word iPhone -- both good and ill -- the more they promote the iPhone brand and product awareness. And judging from reactions I've seen from people actually trying and using an iPhone, once someone tries an iPhone instead of reading an article about it and compares it with their current cell phone experience, they're sold regardless of what they have read.
iPhone nanos and the myth of 60% margins
I'm glad to see that Piper Jaffray analyst Gene Munster notes that reporters have overestimated Apple's margin on iPhones, probably because they have confused parts cost with the cost of goods (at least that's my supposition).
And one other key point: Munster says estimates that gross margins for the iPhone are in the 40%-60% range “are too high.” He says the iPhone’s margins are likely in line or slightly higher than the corporate average of about 30%. He does say, though, that the company can gain some economies of scale from building new iPods with similar parts to the iPhone.
Now if we can just get other analysts to stop theorizing that Apple's going to introduce an iPhone based upon the iPod nano design that you dial using a simulation of a rotary dial on a touch pad. I know Apple filed a patent on it, but how wowed would you be to see dialing on a circular touch pad from a company that prides itself on great design? I mean can you see Steve Jobs doing a keynote bragging about what a great experience the rotary dial is?
[Drawing from Apple's patent application]
Mark my words: Music-playing phones with touch-button interfaces are already a dime a dozen. Apple addresses markets with great experiences that consumers will pay for, not mediocre experiences that compete tooth-and-nail to be the cheapest. Any cost-reduced iPhone is going to have 95% of the capabilities of its big brother and deliver a similarly delightful user experience because that is the brand value Apple has established for the iPhone. Anything else would undermine all that Apple has done with the product and brand.
Remember, most consumers hate their mobile phones because they provide lousy user experiences. The iPhone is the first mobile phone handset that consumers actually love to use. Apple's not going to race Motorola to the money-losing bottom of the mobile phone handset business by providing a poorer experience to save a few bucks.
J.P.Morgan's Bill Shope agrees with our point of view, thereby contradicting what his Asian colleague said. Specifically:
We caution that the potential for a low-end, subsidized phone from Apple seems unlikely in the near term,” Shope writes this morning. “Perhaps Apple will choose to eventually replace its iPod family with phones over time, but it could be premature to assume this will happen in volume any time soon.
Big iPhone software update rumored for October
Mike Cane's blog has a fairly credible set of features planned for a monster iPhone software upgrade expected when Leopard is released. No, it does not turn on 3G browsing or GPS service, but it does many things like enabling horizontal keyboards, cut and paste functions, and disk mode that people have been asking for.
iPhone stocks stable yesterday; sales slowing down to a more normal pace?
iPhones were available yesterday at exactly the same 88 Apple Stores at which they were available the day before. That would suggest that either those stories got huge shipments in their last allocation or that the frenzy of iPhones selling out as soon as they are available may be waning. I'd love to hear from anyone who has recently been in an Apple Store about what they've been seeing for iPhone sales rates lately; I haven't returned to an Apple Store since iDay.
As I've been doing these updates, I've felt badly for Hawaii -- neither Hawaii store has been resupplied with iPhones since they became sold out the first weekend. And to add insult to injury, they don't even show up on the default map (although you can see the markers for those stores if you drag the map over to the right about 2500 miles).
Full Disclosure: Author owns Apple stock at the time of writing.