Will the iPhone Suffer From Apple's First-Generation Problems?

| About: Apple Inc. (AAPL)

Ok, let's face it, the iPhone is pretty cool. But so was the Playstation 3, and it has been a thorn in Sony's side ever since it was released. Did I mention that the iPhone is also more expensive than the Playstation 3? My bank account squirms in the face of such obscene prices. Nevertheless, even though there are thousands of people lined up to buy the iPhone as I write this article on my 'trusty' Macbook, two questions still remain: Will the iPhone live up to expectations? And, will Apple's (NASDAQ:AAPL) stock live up to its current price tag?

The iPhone is an impressive technological achievement, no doubt. It combines phone, computer, and multimedia device into one, while sporting a unique design and user interface. Should we expect anything less from Apple? After all, the iMac, iPod, iTV, and Macbooks were all revolutionary in their own right and shared a level of success. But as with most Apple creations, the first generation of their products is often plagued with bugs and limitations that become fixed and improved in future iterations of the same product.

My Macbook, for instance, which you may have noticed was mentioned as 'trusty,' would shut down randomly, give errors, and eventually would not boot up at all. A Genius later fixed the problem which was common amongst first generation Macbooks; they had too much thermal grease on them and shut down randomly as a consequence of overheating. Other improvements came in the way of software patches, improved the volume of the speakers, battery life, system fan speed, and overall system stability. The next generation of the Macbook was lucky to sport all those fixes, and even featured a faster Core2Duo processor for the same price as the first generation.

Other Apple first-gen products were plagued with problems as well; Airport Extreme base station had problems supporting connections, iTV arrived with missing cables, scratch-prone plastics were all too common on the iPods, stain-prone white plastics on the macbooks, etc. Not to mention, the only thing in common between the first and 5th generation iPod is the name. The point is, while the iPhone is a great product, do not be surprised when people start finding flaws or problems with it, especially with first generation -- which is just days away from being released.

Some people have been lucky enough to get to review the iPhone hands-on (I'm not one of them). I did get to read several reviews, and some potential red flags are the short comings in its limited (small screen) web browsing/file viewing capabilities and relatively small storage (compared to iPods). It also uses a much slower 2.5g network, which may impede the YouTube crowd, and its service restrictions may shun users that are loyal to other companies like Verizon, or are just stuck on their plan. Fundamentally, the iPhone is a jack of all trades but a master of none. Cool as it may be, it's an expensive compromise.

So what does this all mean for Apple's stock? There's a lot of hype surrounding the iPhone, which is very dangerous for a stock that sky-rocketed 30% inside of 2 months. Apple has to tread very carefully with the iPhone because it's walking a tight rope with shareholders. The long-term success of the iPhone is probably secure, but Apple cannot afford to have any negative feedback on its iPhone; still, I think it's inevitable that on some level there will be a problem.

Let me break it down to you like a fraction. Factoring the hype and the not uncommon first-gen problems that arise, I would suggest to those that own the stock to hold it, and for those interested in buying Apple to hold off until a few weeks after the iPhone has debuted.

Disclosure: Author has no position in AAPL

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