It's Apple's World; We Just Live in It
Frankly, given the magnitude of the home run for Apple (AAPL) at the Worldwide Developers Conference, it's surprising the company didn't end up higher by $5. I'm viewing much of this from a different lens, as usual, and here are just a few things springing to mind.
Thoughts on the iPhone News
1. Every single sales estimate for the iPhone is too low now -- including mine. This lowered price point is a huge boom for future distribution agreements as it still gives AT&T (T) a nice chunk of recurring revenues and retention, but allows higher margin sales and double or triple the customer base as Verizon (VZ) and others come online
2. The 3G S looks so good that everybody who already has an iPhone is going to want the new one! I know because I have an iPhone, and felt immediate pangs of longing for the S.
3. One subtlety of the "aggressive" OS price point is that, while selling phones at lower prices might hamper margins, the software margins will decisively swamp that effect. Moreover, I'll take double (or triple) the phone sales and a much more pervasive halo effect over a couple points of initial iPhone margin all day long. 
4. The iPhone is now set to target the enterprise market with abandon.
Further OS Implications
1. This is a powerful attempt at trumping whatever Microsoft (MSFT) Windows is going to do. 
2. I believe this sets up further enterprise penetration, which is wide open for Apple currently on the computing side.
3. This helps get consumers off the fence who have purchased iPhones, and may have been hesitant to purchase Macs thus far.
4. It is just huge for brand loyalty. This is hard to measure but incredibly important. 
5. Keeps the now much larger Apple customer base "unified." This strengthens customer transitions, sets up cross-selling opportunities and so on.
Soon, instead of consumers dividing into those who use a Microsoft product and those who use an Apple, there will be simply be those who use an Apple and those who have yet to buy one.
Overall, the event was beyond expectations and those who talk of compressed margins and "having to slash prices" to move product are totally missing the beat here. Frankly, having Steve Jobs show up would have been overkill.
As far as where this takes the stock? I think that it's just a function of time. But estimates, free cash flow, and the stock price are all moving considerably higher.
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I agree with him. This one is going higher.
However! The main thrust of your article here is not any one specific, it is the overall movement - selling Macs is the main objective of all.
This helps explain the $29 price on Snow Leopard to current Leopard users. The issue is this: since there are not 129 snazzy zippy new features as there was with Leopard OS, then there is not a lot of motivation to upgrade.
"But the purpose of the OS software is to be sold and make money, right?"
That is exactly the thinking of the masses that misses the point. The purpose of the OS is to provide the end user with a end experience that exceeds expectations. This then will sell the hardware.
If Snow Leopard does indeed provide significantly higher performance even on the same hardware, then Apple wants this out in the users hands. This way, when someone is looking over your shoulder and the speed just blows them away...
'nuff said.
To fill my IPHONE with songs would probably cost around $30,000, which I am not going to do but have downloaded a few movies at $6.95-14.95, which I now carry on the IPHONE. My kids have IPHONES and because of the that now have MACS, as do I.
What a revolution.
Rimm never saw it coming.
The IPHONE has become my all in one device for aggregation of my various emails as well as synched calendars. Did I mention it is also a nice phone ?
Well written article.
Thanks,
Minyan Charles
BTW, notice how Apple kinda dissed AT&T during the conference? What if they jump to Verizon next year and you get stuck on AT&T and its expensive plan having just spent more money on your upgrade?
If you purchased less than 30 days ago - I recommend you return it and buy the new one when it comes out. If you have been in for 2 - 18 months, either wait until 18 months is up, or sell your 3G model if you feel you have to upgrade.
But you cannot expect ATT to buy you a new phone 3 or 10 months after they just paid $400 to subsidize the one you have. If you bought a computer in January, you would not expect the mfg to give you a new one in June just because they upgraded their line - would you?
People seem to think that Apple is actually selling the iPhone for $199. They are not. They sell them for $699 (more or less) and ATT pays cash to Apple for the difference.
While it's so apparent Apple is trying to swamp the market with ever lower priced new (but not innovative) gadgets, don't investors want to ask what the profit margin will be going forward? The game is different once Apple is willing to jump into the price-war soup, as it's fair to say there is no longer an innovative advantage to this product -- it's simply a commodity now.
On the business penetration side, I am not sure if Professor Kostohryz or Professor Udall has set a foot into a major corporation's data center recently. We are not talking about Apple being a competitor anytime soon, Windows and Linux owns server side. Regardless of how superior Leopard and Snow Leopard is, it will remain a non-factor to data center folks for years, if there is ever a penetration to talk about.
So let's not carried away by the FAD and try to create another trillion-dollar Cisco or Microsoft out of AAPL, as compared to the former two at its current form and shape, Apple is still no match.
First, I think the iPhone will start penetrating the enterprise more aggressively, in fact, I would say it's a when not if at this point. This is market share, sales and increases potential Mac footprint. Second, small companies have been migrating towards Mac since the adoption of the INTC architecture inside AAPL. Third, you don't need AAPL in the actual data center and I never said they would have products at the heart. They are not a router or switch maker. Fourth, they are selling servers now and they are extremely robust. Note Tech Data is selling AAPL now as a corporate reseller. So more marriages between AAPL and the enterprise may be coming faster than many think.
