Sunday, August 17, 2008

A Clarification From Saturday & The Latest News On The iPhone

First, in Saturday's post, there was a statement that needed to be clarified based on a couple of e-mails. The post should have made it clear that if oil continues to stay at the current level or moves lower, the threat of inflation becomes smaller and consumer spending will keep growing - thereby powering the economy along. Sorry for any confusion.

With that behind us, on to today's post...

The Apple (AAPL) iPhone 3G has been a hit selling millions of handsets and with the slow supply lines, continues to be a much wanted item. In fact this week, Apple signed an agreement with Best Buy (BBY) to become the exclusive "independent" distributor of the iPhone. Now you can get it on-line, at any AT&T store, at any Best Buy, or of course, at an Apple Store. This is great news for Apple, AT&T (T), and now Best Buy. The stronger demand should translate into higher earnings in coming quarters.

It has not all been fabulous news though. There have been problems with activations, upgrade eligibility, and speed from the 3G service. The 3G service seems to work much faster than the old "Edge" service, but according to several reports, even when the phone could use a 3G network, sometimes it opts for the Edge network. When this happens, you are still surfing at the slower speeds.

The biggest issue though seems to be the reception/dropped calls. Apple has acknowledged the issue, and they have said the Infineon (IFX) chip and its software are the root of the problem. Later this next week, Apple has said a new update to the software will be released, and they/we hope that it will fix the problem.

From personal experience, the iPhone is a great phone most of the time. The tools, the apps, the phone itself seem to be very good. Unfortunately, when a call is dropped 3 times in 5 minutes or you have no service in an area that no one else has problems with, the situation does become frustrating. Overall though it is a really good phone.

On the financial front, the sales of Apple's 3G iPhone are projected to reach 3.8 million units by the end of September (Apple's fiscal year end). Also, the new "App Store" has been a huge hit. The first month saw 60 million apps "purchased" on revenues of $30 million. While many of these are free apps, Apple believes it has a current revenue stream that will continue to grow from the store. When you add in iTunes, Apple has really worked to allow itself to continue to generate revenue from is customers.

If you think back, before the iPod, iTunes, and the iPhone, did you really want to buy an Apple product? With the performance and "coolness" of these products though, can you imagine not wanting to have one of these? Apple has turned these products into more sales of PowerBooks and Macs. Apple has definitely figured out how one product can turn into purchases of their other products. This turns into brand loyalty and future profits.

As long as Apple fixes the iPhone issue quickly with just a simple software update, Apple, AT&T, and Best Buy should reap the benefits for quarters to come.

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