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My Apple Eureka Moment: Notebooks Can't Fall Into The Toilet, Cell Phones Can.

|Includes: Apple Inc. (AAPL), BB

  As I watched Apple's stock price go into the toilet today, I felt paralyzed. Could things be this bad?  

  And then, my wife dropped her cell phone into the toilet.  I don't mean to complain, but come on.   I didn't scream.  I've been married too long; I know better. Rather, I had a eureka moment: notebooks can't fall into the toilet, cell phones can.
Everything has a life: notebooks, cell phones, media players, desk tops.  Nobody gets out of here alive including all those gizmos.  Some people can keep their notebooks a long time; my daughter's kept hers going for 6 years!  Our desktop is 8 years old (should I name it? who wants to get attached?).  But nobody, and I mean nobody, keeps their cell going for that long.  Two years tops, if you go by my family.  
  Which brings me to the point of the piece. Cells have short lives. In the past, the cell drowns and you go and buy whatever's on sale, any dumb phone will do. This time, the brief life of the cell plays into the hands of the smart phone manufacturers.  For the first time,  brand addiction is going to be the driving factor.  The iPhone, like other Apple products, has a horde of loyal followers, somewhere north of 30 million.  Unlike the notebook and desktop, the product cycle is short. With a device, estimated to have gross margins of 60%, the implications are extraordinary.  In the past, cell phone users  bought what was available because their was little to differentiate the product.  Now, when the inevitable happens, expect iPhone users to reup.  
   Analysts and pundits all talk about expanding markets for the iPhone: China, South America, Asia.  However, no one talks about the extraordinarily short lifespan of the cell, something that will keep a huge base of sales going for many years to come.  It is the big story for Apple.  Bigger than nonGAAP sales going GAAP.  Bigger than the iPad.  Bigger than China. IPhones have been out fewer than 3 years. Those 30 million plus owners  are likely to replace theirs in what will seem a financial blink of an eye.  This is going to be the biggest driver of Apple's earnings: a high margin high priced product that must be purchased at least every 3 years.

Disclosure: long AAPL