Apple gets no love from Wall Street for new iPhone
Source: RACHEL METZ
The most closely kept secret about the iPhone 5? There isn't one ― yet.
The new iPhone is faster, has a better camera and allows you to sync content without needing a computer. It includes a futuristic, voice-activated service that responds to spoken commands and questions such as "Do I need an umbrella today?" It will now be available to Sprint customers as well as those from AT&T and Verizon Wireless.
But there's a catch. Apple named it 4S when most people were expecting the iPhone 5. Immediately, tech bloggers and Apple fans alike began to wonder if this new iPhone was not as cool as they had hoped. Investors were disappointed, too. Apple's stock fell more than 5 percent before getting a late bump.
If Tuesday's unveiling seemed like a letdown, it was because Apple didn't do a good job of managing expectations. That's a familiar problem for Apple, whose penchant for secrecy invites hyperbolic speculation between its product announcements. Given that it had been 16 months since the previous iPhone hit the market, imaginations had even more time to run wild this time.
"This is the typical Apple scenario: People keep wanting it to do the impossible," said Tim Bajarin, a Creative Strategies analyst who has been following the company for decades.
Apple's approach to the event didn't do any favors for Tim Cook in his first major public appearance since he succeeded Steve Jobs as CEO six weeks ago. Jobs, the Apple visionary and co-founder, relinquished the reins to focus on his health problems.
Cook handled his presentation in a pedestrian fashion that lacked Jobs' flair. The format and stage setting were similar to the presentations that Jobs had orchestrated so masterfully, giving Cook little opportunity to make his own mark, said Adam Hanft, a marketing consultant who runs his own firm in New York.
"It wasn't fair to Tim in his inaugural because there he didn't have any product to show off that was a real barnburner," Hanft said.
"This allowed him to get his sea legs, but he still needs to find his voice and style. They need to come up with a new setting that is equally Apple-like aesthetically, but not the same that they had while Steve was there."
Even though the iPhone 4S is an improvement over its predecessor, it isn't being perceived as a breakthrough partly because it's not being branded as an iPhone 5, as most people had been expecting, said Prashant Malaviya, a marketing professor at Georgetown University.
Not all investors were disappointed.
Stephen Coleman, chief investment officer for Daedalus Capital and an Apple investor since 2004, calls his Apple stock "the safest investment that I own." He said Tuesday's upgrades were "incremental" ― and praised Apple for not messing too much with a model that's working.
"To those who say they're underwhelmed, I'd say they've been fast asleep," Coleman said. "Anyone who's been paying attention at all would have to be dazzled by the product, and earnings."
The stock has risen more than 15 percent this year, at one point hitting an all-time high of $422.86. It has nearly quadrupled since the first iPhone was announced in 2007. The device has been the cornerstone of one of the most remarkable runs in technology history. Apple is now one of the world's most richly valued companies, holding its own against oil companies and international conglomerates.
"What is there to lament?" Coleman said. "For people like me, it's peace on earth. This is one of the great economic stories of our time."
The new iPhone has an improved camera with a higher-resolution sensor. The processor is faster ― the same A5 chip found in the iPad 2 ― so the phone will be able to run smoother, more realistic action games. It's also a "world phone," which means that Verizon iPhones will be useable overseas, just as AT&T iPhones already are.
The fact that a more radical revision of the phone was a no-show leaves room for speculation that Apple will reveal a new model in less than a year, perhaps one equipped to take advantage of Verizon's and AT&T's new high-speed data networks.
There had also been speculation that Apple would include a chip that could talk to payment terminals at retail stores, turning the iPhone into a mobile wallet. Competitors are starting to include this capability in their phones, though the payment systems are still immature. The iPhone 4S doesn't have this.
The iPhone 4S will come with new mobile software that includes such features as the ability to sync content wirelessly, without having to plug the device to a Mac or Windows machine. The phone includes Siri, which lets people speak questions and commands and represents an advanced version of speech-recognition software found on other phones.
Apple also unveiled software that can send greeting cards through the postal system for $2.99 each.
Cook said the most recent iPhone, which came out in June 2010, sold more quickly than previous models, but the iPhone still has just 5 percent of the worldwide handset market. Among smartphones, devices running Google Inc.'s Android software make up 43 percent of the market in the second quarter, while the iPhone captures 18 percent, according to Gartner Inc.
Apple is hoping to grow that share with the iPhone 4S ― something it can do by luring new customers from Sprint and elsewhere, even if existing owners don't see a need to upgrade.
Bajarin, the longtime Apple watcher, is confident that Apple will quickly overcome the perception problem once technology reviewers get a better handle on all the new bells and whistles. He believes that the improved camera and speech-recognition technology are compelling enough additions to make the iPhone 4S another hit for Apple.
"People are going to get over their initial disappointment and want this phone," he said.
Apple's new mobile software, iOS 5, will also be available on Oct. 12 for existing devices ― the iPhone 4 and 3GS, both iPad models and later versions of the iPod Touch.
Apple said Oct. 12 will also mark the launch of its new iCloud service, which will store content such as music, documents and photos on Apple's servers and let people access them wirelessly on numerous devices. One component is a $25-per-year service, called iTunes Match, that will allow people to play their personal jukeboxes on any device with iTunes software instead of keeping them tethered to a personal computer that must be synced with other devices.
The new phone will come in black or white. It will cost $199 for a 16 gigabyte-version, $299 for 32 GB and $399 for 64 GB ― all with a two-year service contract requirement. Pre-orders will begin Friday with availability on Oct. 14.
The previous version, iPhone 4, will now cost $99 for 8 GB. The 2009 model, the iPhone 3GS, will be given away for free with 8 GB. Both also require a two-year service contract.
Don't expect to see an iPhone available with prepaid, contract-free service plans any time soon ― at least not with AT&T. Ralph de la Vega, AT&T's head of wireless and consumer services, said in an interview that the carrier has no plans to offer iPhones with prepaid plans, because even phones that are free with two-year contracts ― namely the iPhone 3GS ― would cost customers a significant amount up front. Wireless companies typically subsidize the cost of phones and make that back from monthly service fees over the life of the contract.
Apple also unveiled a new line of iPods, including a Nano model with a multi-touch display that promises to be easier to navigate.
Apple's stock fell $2.10, or 0.6 percent, to close Tuesday at $372.50 after dropping earlier to $354.24.
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