Assessing the Wild Card in the iPhone Rollout

Apple’s (AAPL) iPhone 3G is coming Friday and there are folks flying to New Zealand, people waiting in line, some conflict in Canada courtesy of Rogers Communications, strong reviews, lots of apps to play with and expectations that border on the ridiculous. It’s a real circus, but before everyone piles onto the  iPhone bandwagon there are a few wild cards to consider.

Sure the iPhone 3G will be big. Sure it’ll sell well out of the gate. And yes, there’s international expansion to be had, but there is a real possibility that the latest iPhone won’t be a slam dunk. Let’s ponder the wild cards:

The economy: Rest assured that the first million or so of these latest greatest iPhones will go to Apple’s existing customers. Upgrades will abound. The real tell will be what happens after the first two months or so. Folks are cutting back on spending across the board and even though the iPhone is cheaper the AT&T data plan is more expensive. Perhaps consumers won’t connect these dots, but a few will. I know. I know. Apple is recession proof. So why am I even raising the issue. Teenagers are cutting back on spending–and they are the most reliable spenders. A Piper Jaffray spending survey of teens predicts that teen spending is going to drop 20 percent from a year ago. And parents are being stingier with the allowance. Teens are also rethinking what they spend on fashion. Will Apple be a fashion casualty? Will iPhone sales lag as parents look over the data costs?

I’d argue the economic questions are valid: Piper Jaffray analyst Gene Munster notes that only 35 percent of iPhone buyers will get the $199 price.  The average iPhone cost will be about $407. Munster is still bullish on the iPhone–as am I–but thinks that momentum will pick up when the real cost of the iPhone is $199.

See all incoming ZDNet iPhone posts and galleries as well as CNET’s coverage and Techmeme.

The snafus: The Apple stores will be mobbed and AT&T has its list of things so you’ll be iReady. The problem: iPhone 2.0 will be more difficult to set up than the first one. Why? You have to select plans and activate the 3G iPhone on the spot. The first version you could simply walk out with an iPhone and activate at your convenience. Grumbles are likely to ensue (see News.com FAQ)–especially because the policy is designed to thwart iPhones that are unlocked to be sold abroad. Apple is trying to alleviate concerns with personal assistants.

Enterprise adoption: I fully expect enterprises to wind up supporting the iPhone, but that’s different than making it the device of choice. Apple’s pitch to enterprises will go on for months and it remains to be seen how quickly corporate America goes for the next-generation iPhone. On the bright side, Apple has removed a lot of the corporate excuses to avoid the iPhone. On the applications front, the first day of Apple’s iTunes Apps Store was a bit light on the business and productivity applications. Among enterprise heavyweights, Oracle and Salesforce.com were among the major companies represented.

Meanwhile, a non-scientific TechRepublic poll indicates that the IT manager crowd isn’t exactly hopping on the iPhone bandwagon.

That snapshot as of last night, however, may not reveal the full picture. Lenley Hensarling, Oracle group vice president of application development, said that he expects sales people to get the most use out of the iPhone. Oracle’s Business Indicators application for the iPhone is focused on the CFO looking for data quickly. If CFOs, sales and the CEO all get iPhone the chances are good that IT will have to support the device.

Expectations: Wall Street is expecting big things from the iPhone. Analysts generally expect higher average selling prices–courtesy of AT&T’s decision to sell iPhones without a contract at a steep markup–and an iPod-ish growth cycle. Following AT&T’s disclosure about how it would sell contract free iPhones at for $599 to $699 Piper Jaffray analyst Gene Munster noted that his estimate for an average selling price of $425 is likely to be conservative.Many of these items are wild cards because we just don’t know how they will turn out. But we will find out soon enough.

Comments

[20smoney:]

Should you own Apple in this horrendously weak economic environment?

20smoney.com/2008/07/1.../

2008 Jul 11 11:43 AM

[User 25600:]

Hey- Why don't you factor in WORLD WIDE sales - Don't you think that will add $$$ to AAPL - Most of you reporters who are supposedly "experts", have you own agenda to pass info..So Sad, that we as readers/investors do not get the whole picture, only the pages You thing are important

2008 Jul 11 11:44 AM

[Cho Cha:]

I have apple stock and I'm going to hold it for 20 more years. Who cares about a cyclical recession. Actually this is a great time to buy quality stocks for the long term.

2008 Jul 11 12:19 PM

[Vox Rationalis:]

A few notes from the AT&T store:

1. NOW they are taking pre-orders for iPhones as they come in. Apple preferred the "lines around the block everywhere in the world" headlines to the "we've pre-sold millions of these puppies headlines. Makes sense to me.

2. According to Random AT&T Store Manager, Apple is requiring in-store activation. iPhone is the ONLY phone AT&T sells that can't be ordered and activated online (even if switching service), so this makes sense. The unanswered question is why would they do this? Random Manager said it was because they wanted to restrict it to one per person, but this makes no sense to me; there are ways of doing this online.

3. I watched iTunes crap out on a sales associate as he activated an iPhone. That's right, iTunes - that's still the activation platform. So what did he do? He asked if the customer had iTunes at home. When the answer was yes, he told the customer to take the phone home, plug it in, and start up iTunes, which would finish the activation process.

Looks to me like Apple and AT&T wanted to reclaim the money they were paying to Syncronoss under the old scheme. SNCR's software bridged the iTunes-AT&T gap, allowing iTunes to activate iPhones on AT&T's network. My guess is that they decided that, aside from today, the waits would be acceptable to customers. Either that or a planned replacement software wasn't ready for deployment.

2008 Jul 11 01:30 PM

[samij:]

25600, iphone has been on sale outside the us for a while and the sales have not been anything to write home about. half a year, including the peak spending season with low hundreds of thousends devices on markets where some 50m phones are sold during the same period.

2008 Jul 11 04:53 PM

[Jon T:]

Apple is right at the centre of a digital revolution...

Computers, handhelds, phones, music and video media. Everyone else is playing on the periphery.

For that reason alone, APPL is about the strongest play there is for when times are tight.. Watch as people sacrifice many other things to stay with this incredible revolution they are delivering. How else do you account for the massive demand for a discretionary product at this stage in the economic cycle?

Seems that Larry Dignan is looking for reasons to temper Apple's success.

2008 Jul 12 08:07 AM

[Jon T:]

"Rest assured that the first million or so of these latest greatest iPhones will go to Apple’s existing customers."

Rubbish. Read up and you'll see that the lines are full of NEW purchasers.

2008 Jul 12 08:11 AM

[mollytjm:]

36% of businesses will support the iPhone? it's only been a year! and already 36% of IT departments will support it...and they're going to Macs too... i don't think Apple's profits hinges on teen spending. it IS A good time to buy quality stocks and Apple is certainly quality.

2008 Jul 12 10:13 AM

[Hugo van de...:]

I have bought and sold Apple shares over the past years and I've made a lot of money on those, even with the dip early this year. I have now invested most of my money in AAPL, because I think they will do even better. Better sales of Macs, more iPhones, lots of iPods. I have just upgraded my iPod touch to 2.0, and I can see the importance of apps to the future of AAPL. These apps will attract a lot of people to iPhones and iPod touch, because they make the device very versatile. Now imagine Apple coming out with a bigger iPod touch, let's call it a Mactouch. A bigger screen, but with the same neat touch interface as the iPhone. This will be the next generation of computing, I'm sure. AAPL will double or triple its footprint in computers immediately. When will this happen? Within a year or two. Why so fast? Because the interface is ready, the only thing that needs to be done is to adapt programs like Word, Excel and others to accept the new way of computing, by touch.

2008 Jul 12 11:43 AM

[Jason B.:]

I'm invested in AAPL for the longhaul, because they continue to create products that don't get in people's way. I bought the 16GB $299 version of the iPhone 3G yesterday, and once the activation problems were over (about 4 hours after I bought it), it was very easy to set up.

It's products like this that convince me that AAPL is a great long-term investment.

2008 Jul 12 11:55 AM