Thursday, June 26, 2003

Let the iPhone Hysteria Begin

The only email spam I consistently read comes from Apple. Every few weeks, they always manage to come out with some new iPod add-on that I must own. I think I’ve now spent over $1000 on accessories for my $179 video iPod.

Somehow this Apple spam consistently avoids the Bulk folder of my Yahoo! Mail account (while my girlfriend’s emails get flagged as spam. wtf?). Today’s message reminded me of this Friday’s iPhone launch. Being an Apple shareholder (AAPL), you’d think I would remember such an important date. But the iPhone hype has been on overdrive for so long that it’s easy to ignore when it dominates the headlines for 6 months.

Also today, Apple & its exclusive carrier AT&T announced 6 different service plans ranging from $59.99/mo for only 450 minutes to $219.99/mo for 6000 minutes. These monthly fees are on top of the $499 price tag for the 4GB model and $599 for the 8GB model based on a two-year service contract.

The $3000 Hobby (and Other iPhone Hurdles)

Judging by today’s selloff, I think potential customers are starting to realize how expensive the iPhone will be. If you sign the mid-range $99.99/mo service plan after purchasing the 8GB iPhone model, that alone will set you back $3000 during the two-year contract (without any accessories)!

Here’s a few other potential hurdles that could prevent the iPhone from exceeding its already lofty expectations:

  • You must be an AT&T customer to use the iPhone. With a market share of 20%, that means 80% of wireless customers must cancel their current contracts to sign with AT&T. Being a Sprint customer, I would have to pay a $175 cancellation on top of the $3000 price tag for the iPhone. AT&T’s exclusive contract runs through 2009.
  • Only 4 & 8GB of hard drive space? My tiny video iPod holds 30 GB for less than $200.
  • Recent surveys have shown that the majority of IT departments will not even consider the iPhone due to its PC incompatibilities & exclusive AT&T contract. That will dampen business spending & all but eliminate demand for the higher-tier contracts.

“Sell the News”

On Jan 9th 2007, Steve Jobs announced the iPhone at the Macworld Conference & Expo. The stock has since been on fire rising 50% to $125, adding $30 billion to the company's market capitalization. Will the iPhone really hold that much value for Apple? This huge runup comes after a fantastic finish to 2006 after Apple’s stock bottomed out at $50 in October. Thus, nearly everyone holding Apple is sitting on huge gains.

Expect an Apple selloff following the iPhone launch. 3 similar mini-selloffs have occurred during this recent runup:

  • June 26th: Apple announces 6 AT&T service plans for the iPhone. The stock drops 3% on investor concerns over the high prices.
  • June 11th: Steve Jobs shows off the iPhone at Apple’s World Wide Developer's Conference. The stock falls 5% after investors saw no “surprises”.
  • March 20th: Apple beats 4th quarter analyst earnings & revenue estimates. The stock falls on profit taking.

Apple’s recent success has created impossible expectations. With all the mega-hype already priced into the stock, just meeting expectations will create a selloff. Longer-term investors need not worry because the future looks bright with Macs gaining market share & the iPods continuing their dominant foothold on the music industry.