Remember what happened when Nike (NYSE:NKE) hooked up with Michael Jordan? The $199 3G iPhone is Apple's MJ. The world is about to change. By Christmastime, if you're not ichatting, igaming, or ipoding on your mobile device you will be severely outdated. It is rumored that the new applications will allow the iPhone to access your home computer and your home television. This technology will allow users to stream any movie, television show, or song directly to your phone over the 3G network.
Other applications will turn the phone into a remote control, video recorder, flashlight, scientific calculator, business email device, and hundreds of other cool apps from the SDK developers. It was assumed that because no subsidies had been offered for the 1st generation iPhone that consumers would have to pay at least $400 for the new version. AT&T's move just changed the game.
Unfortunately, this iPhone explosion is going to cause some casualties. The first was Palm (PALM). CEO Ed Colligan ignorantly "laughed off the idea" that the Cupertino, Calif.-based company would experience any immediate success in delivering a device to the fastidious smart phone market. "We've learned and struggled for a few years here figuring out how to make a decent phone,'' he said. "PC guys are not going to just figure this out. They're not going to just walk in.'' Poor Ed, since that statement on November 22, 2006 his stock has dropped 32% to $5.80 a share. My sources tell me that the Treo makes a better paper weight than a smartphone.
Palm might have been the first casualty but they won't be the last. The next wave starts with Research in Motion (RIMM). RIMM's stock price as of market close on Wednesday sat at $121.78 reflecting a p/e of 54. As a company, not only is RIMM a one-trick pony, but their one trick is a one-trick pony as well.
Let me explain. According to a recent study by ChangeWave, 56% of Blackberry owners cite email as the primary appeal to own the device. The famed physical keyboard only received a 5% necessity rating. What's going to happen when RIMM customers discover that they can get the same email functions on another phone that also features the best music, video, web browsing, touch screen, and other business apps for only $199? RIMM's growth rate will decelerate and their story will begin to fade.
Until this point, RIMM has been able to compete on price; the $199 eliminates that. What about the cheap consumer market? The $199 price break effectively eliminates any line separating business smartphones from cheap residential use phones. The fire that has been started in the smartphone market is about to spread to the residential market. The AT&T price cut, combined with Apple's international expansion plan, officially opens up the iPhone to the 1.1 billion-unit cell phone market. Growth rate weakness will be felt by the entire industry from Motorola (MOT) and Nokia (NYSE:NOK) to Verizon (NYSE:VZ) and Sprint (NYSE:S).
Investors have failed to grasp this iPhone story. On February 26th BMO analyst Keith Bachman declared that Apple's three growth drivers - the Mac, iPod, and iPhone - have been reduced to just one: the Mac. I do agree that the iPod's days as a growth driver are over, however, I do believe that iPhone growth hasn't even begun to be priced into Apple stock.
Many are still wondering if Apple can meet the sales goal of 10 million this year. I've got some new numbers for you all to think about. Try 25 million phones sold this year and 100 million phones next year. The less expensive iPhone is a game changer. This could be the greatest market share story of our generation. Any money manager who isn't invested in Apple should be required to take a breathalyzer.
The anti-Apple people are like the anti-Jordan guys during the Chicago Bulls run of 6 NBA championships. It just doesn't make much sense; you're missing out on history. When my kids ask me about how amazing Jordan was, what if I had to tell them that I was actually a Clipper fan? My kids would laugh me out of the room if I tried to tell them how great Danny Manning, Charles Smith, or Gary 'the General' Grant were. The time has come to be long AAPL and short RIMM. Don't be caught on the wrong side of history.
Disclosure: Long AAPL.