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Apple released the iPhone on June 29th, 2007 to a thunderstorm of media hype and high expectations.hundreds_of_thousands.html Apple Insider IPhone 3GS preorders]</ref>

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iPhone's getting a debut other consumer electronics would die for.

A survey It’s not a surprise that sales of iPods have been slowing. Since we live in a world of limited resources, growth cannot persist indefinitely. As iPod sales have grown to staggering heights, the Law of Large Numbers takes effect. To continue its FY07 31% unit growth rate, Apple would need to sell close to 70 million iPods in FY08, which is one-half the 140 million total sold over 6 years. At that growth rate, iPod sales would be 200 million FY12. It’s highly unlikely that annual sales volume would ever achieve that level. Unit growth has been trending towards a rate in the teens, possibly single-digits. Last quarter, Q1 2008, units increased 5%, compared to 50% growth in Q1 2007. Yr/Yr 2007 growth rates were 24% (Q4), 21% (Q3), and 17% (Q2). Unit growth was 31% in FY07, compared to 75% (FY06), 409% (FY05), 371% (FY04), and 149% (FY03). decreasing rate, finally to a point where sales turn flat as the product enters the maturity phase. Sales growth turns negative in the decline stage.

Image: Applechart2.jpg

To avert the Decline (or mature) stage, product innovation is needed to rejuvenate sales growth. Introducing improved models with new features can sprout a new curve from sales growth reaccelerating. The S-curve then takes on a more scalloped shape.

The new iPod Touch presents the opportunity for attracting new PMP users plus influencing current owners to “trade up” to a device at a higher ASP. The Shuffle should appeal to price sensitive consumers who previously weren’t willing to pay the high prices for iPods. These two factors should strengthen demand in light of a maturing market.

Companies that benefit from the iPhone's success

  • Apple, Inc, as the producer of the iPhone, stands to gain from its success. The components used in the iPhone cost Apple around $220 for the $399 iPhone (excluding the cost of assembly), suggesting margins in the 50% range. [1]
  • Synchronoss Technologies (SNCR) runs AT&T's internet customer service system, including phone activations. Synchronoss makes about $8 for every iPhone that is activated. A successful iPhone launch would boost their revenues.

Component suppliers that benefit from the iPhone's success

Apple uses a number of contract manufacturers and suppliers to make its products. Most are Taiwan-based. While shares of some of these companies are listed on U.S. exchanges as ADRs, others can only be purchased through the Taiwan or Hong Kong stock exchanges.

CDMA / Verizon Version

Apple is developing a version of the iPhone that would work on US Cellphone networks other than AT&T, according to a WSJ article. The new phone would be assembled by Pegatron Technology Corp., the contract manufacturing subsidiary of Taiwan's ASUSTeK Computer. [2]

3G iPhone
First Generation iPhone
  • Balda AG (FRA:BAD) is a German company that makes what technology experts believe[12] is the most expensive single component -- the touch screen. At $60, the screen represents 30% of the cost of the iPhone components.
  • Samsung Electronics Co. makes the main microprocessor that runs the phone's operating system and various applications. [13]
  • Infineon Technologies AG (IFX) makes the chips that power the iPhone's wireless data capabilities. [14]
  • ARM Holdings (ARMHY) licenses the technology used in the iPhone's CPU.[15]
  • Hon Hai Precision Industry Co., the world's largest electronics contract manufacturer, received the initial order to assemble 12 Million iPhones[16][17]
  • Quanta Computer (TPE:2382), a laptop manufacturer, received an order for an additional 5 million iPhones, apparently destined for sale outside of the United States[18]
  • Catcher Technology Co. (TPE: 2474) makes the casing for the iPhone[16]
  • Primax Electronics (TPE:2336) which makes digital camera modules for cell-phones and is a supplier for the iPhone[16]
  • Entery Industrial Corp. (TPO:1333) is a flash memory manufacturer and a supplier for the iPhone[16]
  • Unimicron Technology Corp. (TPE:3037) is a printed circuit-board manufacturer specializing radio frequency (RF) modules. It is a supplier for the iPhone[16]
  • Texas Instruments (TXN) makes a power management chip. [19]
  • Marvell Technology Group (MRVL) supplies the chips that allow the iPhone to connect over Wi-Fi networks [20]

Hi John,Relatively new to the blog but wanted to jump in as I acluatly just finished reading The New Market Wizards. I too found that idea interesting. I can see both sides of it. And it surprised me that more than 1 of the wizards interviewed had the same strategy. I think some of it may be more psychological than anything. When you are on a winning run, you are more confident about your trades and therefore more likely to follow your plans and place a solid trade. When you are on a losing streak, I think sometimes the mentality may be to try and get that last loss back so you may reach more. I think it is something that is I would want to test in paper trading first, see if at the end, you really do end up more than just placing the same amount on each trade.I am with you, I think having a pre-determined exit point can be somewhat problematic, especially when it comes to letting winners run. I do think at the initial set up, you should have an initial loss point set up to minimize risk, but as the trade runs in your favor, I think it translates more into a managed stop than a pre-determined stop. Look forward to reading more of your ideas and thoughts. Thanks again!

Companies that benefit from the iPhone's failure

  • Motorola makes cellphones such as the "Q" which would compete with the iPhone -- both the Q and the iPhone combine a cell phone and PDA, and both compete in the more expensive end of the cell phone market.
  • Reasearch in Motion's Blackberry device, which is industry standard for corporate email, could be challenged by the iPhone. While RIM currently dominates smart phone sales among consumers, the Apple iPhone has had tremendous success and continues showing momentum in this market. RIM has released the BlackBerry Bold which offers more multimedia features to compete better with the iPhone. In addition, RIM is will release the BlackBerry Storm 9530 which will feature a touch screen technology similar to the iPhone. Meanwhile, the longstanding woes of Palm (PALM) and its Treo are accelerating. However, the iPhone's lack of a keyboard may make it difficult for the iPhone to compete with the blackberry among business users. The graph below shows the current market share in the smart phone category (as referred to the March 17-24 ChangeWave survey of 3,597 consumers[21])

Image: Rimvsaaplcurrent.gif

  • Google's android operating system is being featured in the T-Mobile G1 smartphone. The G1 is not expected to be an iPhone killer, but it is the first move of Google to break into the smartphone market and gain a foothold on mobile web surfing. The G1 is priced just below the iPhone at $179.
  • Samsung launched both the Omnia then the Instinct. Both are competitors to the iPhone.
  • Nokia launched the Nokie N97 the same week the iPhone 3GS was launched. The N97 features a hard keyboard, an advantage over the iPhone.

Trends and Forces

Could the iPhone Replace Notebooks in China?

The average internet user in China is 25 years old, but in China, owning a computer is not socially acceptable yet.[22] As a result, the Chinese youth pack into internet cafe's that are open 24 hours a day. The young demographic and their hunger for technology and the internet plays right into the hands of the iPhone. While computers are not socially acceptable, cell phones are, which means that the Chinese consumers may very well replace computers with smart phones, like the iPhone. Not to mention, the market for Chinese cell phones is already massive - China Mobile had as many as 574 million customers.[23]

Japan Not a Fan of the iPhone ?

iPhone sales in Japan have been such a bust that Apple has decided to sell it for free (given that a 2 year contract is purchased as well).[24] Reasons for the phone's lack of success point to possible shortcomings of the iPhone, such as the comparitively low megapixel camera and the inability to take streaming video (both highly coveted features to the Japanese). Other complaints from the Japanese have been reported to be the very high monthly data plans and the fact that the iPhone is not produced by a Japanese company. Whether this free iPhone market campaign makes an impact in Japan or not, Apple clearly has an uphill battle ahead of them in Japan.

However, AppleInsider investigated the Wired report and questioned its validity as reported in the article: Japanese Hate for iPhone All a Big Mistake. The author, Brian Chen, misquoted a source saying the iPhone makes a lame fashion statement. The source, Daiji Hirata, seeing that he had been misquoted responded that he'd never met Chen. ”I have never said 'And carrying around an iPhone in Japan could make you look pretty lame.' I think most Japanese think iPhone is the coolest item. At least I have and love iPhone.“

AppleInsider concluded that much of Wren's argument was rather inaccurate and unsupported. Yet, there isn't much dispute that iPhone sales have been somewhat soft in Japan, due to the array of competing devices along with the Japanese preference for homegrown technology.

The Rise of of iPhone Applications

At the release of the 3G iPhone, 500 applications are available with 10% of them being free and the other 90% being $10 or less.[25] The rise of applications brings the iPhone, and other smart phones, that much closer to becoming handheld PCs. Companies like Sega are utilizing the accelerometer, which detects motion, to produce a game app. Other companies are producing apps that help build friend networks, and others are utilizing the GPS to notify you when you are near a restaurant you like or that a friend recommended.[26]

On August 11, Apple announced that it had $30 million in application sales for the iPhone. In comments with the Wall Street Journal, Steve jobs said "This thing’s going to crest a half a billion, soon.... who knows, maybe it will be a $1 billion marketplace at some point in time…. I’ve never seen anything like this in my career for software.”

The launching days: recent iPhone news

First Generation iPhone

  • As expected, crowds swarmed the Apple stores on and after June 29th 2007 -- according to the LA Times, half of the West Coast Apple stores sold out on the very first day.'s Jaffray estimates first weekend sales tally to about 500,000. The iPhone seems to be living up to its hype --reviewers are not gushing, but they're almost uniformly pleased.
  • The launch wasn't all golden for iPhone, though--until a few days after launch, about 2% of new iPhone owners faced a nightmarish activation process. (Macworld's Dalrymple relates his "iPhone activation disasters" here.) Most of these issues have been resolved by now; it remains to be seen how big an effect this will have on iPhone's sales.
  • Recent speculation about the possible introduction of a smaller and less expensive iPhone was received so well that Apple's stock jumped to a new all-time high (as much as $134.50) that morning, according to the Associated Press (see Apple's WikiChart entry, July 10th, 2007). But the rumors haven't been confirmed, and doubts resulted in a gradual decline later in the day--iPhone's hype aura is a volatile catalyst in more than one direction. (Patents filed earlier in the year that seemed to show an iPhone/iPod nano hybrid fuel the speculation.)

The 3G iPhone

The 3G iPhone was released on July 11th 2008 in 22 countries, and in the first 3 days 1 million 3G iPhones were sold. This makes the 3G iPhone one of the largest consumer electronics launch in history.[27] The new iPhone is priced at $199 and $299 for the 8GB and 16GB versions, respectively. However, Gene Munster, a Piper Jaffray analyst, did a survey that found only 35% of buyers will be eligible for the price subsidy and that the average entry price level for an 8G will be more around $400.[28] The 3G speed is about 3x as fast as the current EDGE service and battery life has been boosted to 10 hours of 2G talk time or five hours of 3G talk time, about five hours of browsing, 24 hours of audio, seven hours of video playback, and 300 hours-standby. In addition, it will feature real GPS capability. The new iPhone was released to 22 countries on July 11th and will be offered in 70 countries by the end of the year. As for iPhone applications, a survey taken of iPhone developers found that about 70% of applications were expected to be offered for free, and for the rest the price would begin at $10, but likely drop to $3 or less.[29] Apple (AAPL) is initially offering 500 applications.

One concern about the new iPhone is its camera. The iPhone still has a 2 megapixel camera which is inferior to many of its smartphone competitors that have 3-5 megapixel capabilities. Apple may not put as much priority of the camera but a representative from Nokia called it the most important capability for a consumer purchasing a phone of this caliber.[30]

3G iPhone purchases require committing to a 5year service agreement which includes $30/month data plan. The cheapest voice plan offered is 450 minutes for $40/month. Thus, the minimum monthly service fee available is $70 (voice/data) yet text messages aren't included.

AT&T stated a no-contract 3G iPhone would eventually be offered for $599 for an 8 gig and $699 for a 16 gig.[31] As of January 2009, AT&T has yet to make available non-commitment pricing.

The App Store

The Developer's Perspective

From the perspective of an iPhone application developer or any mobile software engineer, the iPhone is the most prime market, operating well even during the current worldwide recession and catering to the needs of the members of low socioeconomic status. [32] Due to this, mobile software developers face a seemingly unending supply of consumers who may buy a well designed application. Since the App Store ranks applications on both freshness and popularity, both new applications and popular old applications receive spotlight. This helps the developer publicize his application with little effort beyond the construction of the "App" itself.

There are many success stories due to the iPhone App store. One of the more popular success stories is Steve Demeter's $250,000 of profit after two months of releasing a puzzle game named Trism. [33].

The App Store and Apple

Applications on the App Store sell from $1-$10, with a few exceptions. Apple CEO Steve Jobs announced that Apple will keep 30% of the sales of an application and lets developers keep 70% of the income. [34] As of August 2008, Apple made approximately $30 million selling 60 million iPhone applications. [35]

A few controversies regarding the strict regulation of App Store applications bother iPhone App developers, none of which is cause for any concern to investors.

With the iPhone's and iPod Touch seamless integration with iTunes as well as the simple iPhone usage and computer usage, many consumers are turning to iTunes for the first time. Once a consumer is using iTunes they are very likely to be a repeat customer due to the copywrite code that makes the songs unable to be transfered to other portable devices.

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