Apple says it has sold 40 million iPhones, and analysts estimate the company enjoys a lavish 58 per cent gross margins on the device. In comparison, Research In Motion RIM-T sees 43 per cent margin on its BlackBerries. The iPhone is a lucrative franchise for Apple and its strongest growth engine. But without a new market -- like the one Verizon would open up -- or a striking redesign, holding these peak levels will be a challenge.
Event guests play with the new Apple iPad during an Apple Special Event at Yerba Buena Center for the Arts January 27, 2010 in San Francisco, California.— AFP/Getty Images
3 - iPad
After working on its highly-anticipated tablet device for three years (or more), Apple unveiled an expensive e-reader. While there's no doubt that this is just the first model of Apple's new tablet family, the iPad is a disappointing effort that fails to live up to the hype.
The iPad is both an oversized iPod Touch and an under-powered netbook. Hitting stores on April 3, the iPad is aimed squarely at the Amazon AMZN-Q Kindle. Apple has a history of making bold attacks on humble devices; the iPod crushed MP3 players, the iPhone vastly improved on cellphones, and no doubt e-readers will never be the same again. Sony SNE-N must be quaking in its galoshes.
Numbers
The iPad price starts at $500 and tops off at $830 with 64 gigabytes of memory, but 3G wireless capability costs extra. By comparison, the Kindle sells for $260 with 2 gigabytes of memory; 3G wireless service is included. Apple shares fell 7.6 per cent in the two days after the company unveiled the iPad. It's clear that thousands of people want a thin, color-screen reading tablet, but it's not clear that millions need it.
Conclusion
To recap the bearish scenario:
- PCs are back, which leaves Macs as the yuppie equivalent of BMWs. Paying twice the price for a computer can only be so cool.
- The revolutionary iPhone is getting stale. No fresh market, no fresh phone. Androids are looking like an Apple antidote.
- The iPad is a not so "magical" e-reader. Expect to hear a lot of: "I spent a cold night in line for this?"
Apple thrived during the downturn on the strength of a great Mac and iPhone product cycle, earning its 145 per cent stock appreciation last year. Today, with the stock around $200, Apple sits at a lofty market value of $189-billion, 57 per cent more than PC giant Hewlett-Packard.
Investors like to call the stock's premium valuation "the Apple tax."
It might be time for your refund.
