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Apple's iPad and The Impact To Their Business (and Stock)

|Includes: Apple Inc. (AAPL)

Ok, the dust has settled a bit on the brand new product from Apple Inc. (NASDAQ:AAPL).  Apple’s iPad had enormous hype surrounding its release that there is no wonder many people are saying it didn’t live up to it.  Unless the iPad could cure cancer while you watch a movie, I don’t think it would have been able to live up to the hype.  Thus is the bar that Apple has set for itself over the years.  A mark of extreme success in my opinion.

So, with that said, I believe the iPad is killer.  I haven’t seen or played with one myself yet as most people haven’t, but from the product reviews and videos, I think it actually is a game changer.  Many people don’t see it that way.

The Criticisms & Headwinds

Let’s first look at the common criticisms of the device.  The biggest concern I’ve heard expressed is that the device doesn’t have a definite market or need.  It’s not a phone, it’s not a laptop.  It doesn’t fit in your pocket, yet it’s smaller than my computer.  From my point of view, I think that this criticism is being over-played.

The ability for a person to be either in bed, in a coffee shop, or on an airplane and do the following things in sequential order: 1) watch a movie  2) read a book  3) check email 4) surf the web on the same device on a beautiful screen & interface I think overshadows all concerns of a lack of a defined category for the device.  What other device can you do that on?  The ease of use that imagine will come with it (like all Apple devices) will make it a must-have device for many people.  Individuals looking to buy a netbook or a Kindle I think will opt for an iPad instead.  I believe it’s a perfect addition to Apple’s product line sitting nicely between the iPhone/iPod Touch and the Macbook.

A legitimate headwind is the economy.  Simply put, consumers are hurting, and no matter how revolutionary or “cool” a new device is, your sales will be impacted.  Fortunately, for Apple, they have some pricing flexibility.  I was actually surprised at the $500 entry price for the device, and most people expect the prices to fall in the near future similar to all pricing behavior of new electronic gadgets.    Amazingly, the iPad is reportedly only costing Apple $229 to build, which means they have some fat margins in there and as I already mentioned, room to reduce the price.  This will help offset the weak consumer, but not completely.

For me personally, I own an iPhone, but at this point will not be buying an iPad.  I would love to have one, but I’m in a pretty frugal phase of my life and simply can’t justify buying the “latest gadget”.  People with less restraint and/or more money will perhaps be buying the device.  If I traveled full time like I used to, it would probably buy it immediately for airplane use.

Impact On Their Business & Stock

The impact to top-line revenue will probably be minimal for the next couple quarters, but I will not be surprised to see the iPad become a nice contributor to Apple’s top line and definitely the bottom line.  I do believe that the device will be a success.  It might not sell as many units as the iPhone does, but it does not need to in order to be a success.

As an investor, unfortunately, you need to be aware of the broad market direction as much as you need to be familiar with Apple’s fundamentals.  All stocks will move upward and lower with the broad market to some extent in the short run, and I do believe the broad market is a little high for new money to be allocated into most stocks.  Apple (AAPL) has had an enormous run, and it’s tough to buy at current levels.

If you’re a long term investor, keep an eye on Apple’s stock and consider picking up shares if the stock moves below $150 or so.  It’s a great company with an absolutely killer product line in the industry.  This won’t change anytime soon in my opinion.



Disclosure: No position in Apple (AAPL)