Apple agonistes

Apple agonistes
Posted by Charles Cooper 5 comments

Steve Jobs: What, me worry?

Browsing the headlines on Yahoo Finance this morning was enough to make anyone briefly consider jumping out the window. To wit:

• Job worries sink consumer confidence
• S&P: U.S. home prices down sharply
• U.S. home foreclosures soar in January
• Harsh light shines on iPhone, iPod sales

So here's the multiple choice test: Which headline does not fit with the rest? If you chose letter "D" you win a dream date with my colleague Michael Kanellos (No worries: Kanellos is off reporting on start-ups in Ireland this week, and so you're safe.)

I have to confess that the depth of emotion punctuating the "whither Apple" debate never ceases to baffle me. Throughout its history, Apple has always received more than its fair share of scrutiny. The commentary has usually been marked by extremes, pro and con, between the bulls and bears. That just went with the territory. And now a new element has been injected into the debate over Apple's prospects: recession. On Monday, my ZDNET colleague, Larry Dignan, wrote eloqently about Apple: the angst versus the reality. And he's right in many respects.

What with home foreclosures on the rise, crude oil prices breaking record highs, and the banking industry in its deepest crisis since the S&L mess of the early 1990s, there's enough to worry even the most Panglossian optimist in the crowd. And so in the last couple of months, Apple shares have plummeted from the $200 level late last year to under $120.

Which side has it right? Based upon the current stock price, you have to go with the bears--at least until the free fall ends. The gist of their argument is as follows:
• Apple doesn't have any upside surprises coming off one of its biggest product cycles.
• Sales of iPhones are said to be coming up short of expectations, while the number of people unlocking the devices is higher than anticipated.
• There are increasing signs of iPod saturation.
• With the economy worsening, why assume strong demand for (relatively) expensive Apple electronics products will continue?

Eric Savitz from Barrons has a good synopsis of the current concerns being articulated by analysts at Bernstein Research, J.P. Morgan, and Morgan Stanley.

The problem I have with the bears is that they've been wrong for much of the last three years. Everyone knows that the iPod is maturing. That's yesterday's news. In fact, Piper Jaffrey analyst Gene Munster believes the debut of the iPod touch signals the start of more Internet- and Wi-Fi-connected iPods in the future. If he's right, that may well turn out to be a game changer.

On the iPhone front, we'll have to wait for Apple to disclose the latest numbers during its next earnings call. But the same worry warts bemoaning the rise in so-called unlocked iPhones remind me of the sturm und drang surrounding the early days of the iPod. It took a couple of years but Apple had a major hit on its hands by 2003. I'd be floored if the iPhone did not repeat that pattern.

iPod unit growth rates(Credit: PiperJaffrey)
The problem I have with the bulls (maybe "perma-bulls is the better term?) is that they turn insane when the subject is Apple. These folks would ordain Steve Jobs dictator for life. Nothing he touches is unworthy of hushed reverence. And woe to the infidel reporter who dares breathe a syllable of criticism--the Mac mujahadeen make no allowance for the 4th Estate (or the First, Second and Third, either.)

So here's where I think we're heading.

Apple is not immune to what's going on in the rest of the world. If the U.S. economy goes into the dumper, some prospective buyers will defer their purchases until a sunnier day. But that's old news by now. The iPhone remains head-and-shoulders above any smartphone in the industry. Everyone knows the product is a long-term play. When my wife, perhaps the most nontechnical human on the planet, told me last month she wanted one, it spoke volumes to me.

Don't lump in Macintosh customers with regular PC shoppers. These folks have always been ready to pay a premium because they believed the Mac offered special value. Save the fight about whether they're right for another day. What's important to recognize is that they groove on Apple. Recession or no recession.