01.09.07 TVR Hotline: Apple versus the World...Day 4

In tonight's Hotline:
Grass is greener - like Oz Green - in SF

On Sunday, I mailed a colleague re: a potential meetup here at the Consumer Electronics Show (CES). He noted that he had decided to head to San Francisco instead of Vegas this week, ostensibly (why else would he be there) to attend Apple Comput...er, uh...Inc.'s MacWorld event. Reloading several Web pages to get up to the minute info from Steve Job's keynote address this morning, I was envious of his visit to the Bay.

That's because Mr. Jobs unveiled the iPhone this morning, to ludicrously positive fanfare. Receiving notes from the show in chunky soundbites, I couldn't help but sit in awe of how incredibly talented Apple is at hardware and software design. The iPhone is simply genius in its design and control.

The iPhone is controlled almost exclusively via a 3.5" widescreen touch sensitive display. And the touch screen needs no stylus, so apparently perceptive, yet wary and controlled is its sensitivity. Landscape or portrait - it automatically guesses which you want using a built-in accelerometer - the screen is a beauty. At least it looks like one from several hundred miles away.

And the software running behind the screen is at first glance (and likely to be even after extensive comparative testing) the most emphatically intuitive, broadly capable and wildly sleek mobile OS currently in play. It's actually Apple's own OS X, the system that runs its computers, though with an elegant rendering that pays respect to the relatively diminutive face on which it displays.

Gah, that's gross. Such gushing over a tech product. I've heard it all day, most often accompanied by some Vegas-esque dancing (hula-hooping at one point, too). I want to say the device deserves it, and it probably does, but it's not my place to be so gratuitously slobbering over a new design. For a few moments, I was overcome.

Indeed, already there are some elements of the phone's design sure to prove contentious. To be available this June in 4 gigabyte and 8 gigabyte flavors and sporting full iPod media playing faculties, the device now boasts only the meager GSM EDGE, 2.5G wireless connectivity standard. That means it's comparatively slow relative to other smartphones already well established in carrier quivers.

So prominent were the device's Web-based aptitudes displayed during Jobs' keynote (he managed to get the CEO of Google, Eric Schmidt and co-founder of Yahoo! Jerry Yang on the stage one after the other - talk about power!), we bet folks will be disappointed with the relatively slim bandwidth. Cingular posts on its Web site that the EDGE network offers average data speeds between 75Kbps and 135Kbps. In a press release earlier in the week, Cingular boasted its 3G HSDPA network manages average downlink (to the phone) speeds of between 400Kbps and 700Kbps. Folks used to more likely will be unhappy with less.

It sports Wi-Fi, which will be fine in metros like SF that are getting full coverage, but it's not gonna get the widespread availability some might want in order to compensate for the lowly connectivity tech, which we guess will get an update to HSDPA in rev 2 of the phone.

The lack of a keyboard may prove a difficult omission for some to get over, too. Though it's almost for sure to be addressed with Bluetooth-enabled wireless accessories (there's an unbelievable - really, I can't believe it - assortment here at CES), the lack of a familiar button keyboard and the need to utilize precious screen space for letter input may hurt the device's usability in a corporate context.

But the iPhone isn't aimed at Blackberry types other than those who believe pretending to be incredibly important by constantly typing on a teenie phone makes them look cool. Targeting 10 million units sold in 2008, Apple has set a lowish bar. Buckingham TechValue Portfolio (BTVP) Nokia (NOK-$19.38) thinks a billion phones sold around the world last year, so Apple's goal amounts to less than 1 percent of what's very likely to be a well-higher total next year, and will hardly be noticed by the major players.

Yet that's an unfairly favorable comparison. The average price of phones Nokia sold in the third quarter of last year was Euros 93 (about $120). The 4Gb and 5Gb iPhone models are expected to retail for $499 and $599, respectively. Research firm Gartner estimates that 81 million smartphones sold in 2006. Those data as perspective, the 10 million phone target looks a more formidable challenge.

The iPhone is indeed very cool, but it combines a feature set that sits middling between the slim phone and the full-featured portable computing device, yet sits at the very top of the price scale. Its success as a design is unmistakable. Its success as a product, well, that's up for proof.

Key hedge here, I certainly wouldn't bet against it!

Done that before. Research in Motion's Blackberry, despite all my negative prognostications, has maintained better than expected growth in the face of mounting challenges from Palm, Mowrey Portfolio Compiler (MPC) member Motorola (MOT-$18.26), Nokia, Samsung and a host of other lesser known companies. Apple adds to that list. RIMM's shares faltered today on the iPhone announcement, but methinks Apple won't challenge RIMM's dominance anytime soon.

In truth, in the corporate power phoning realm, Apple likely won't make much more than a dent. More T-Mobile Dash or Sidekick than Blackberry, Blackjack, E62, Treo or Q, the iPhone will be picked up by more of the uber-hip (and necessarily rich) crowd than the suit and tie bunch.

Hopefully, the iPhone will do more to expand the smartphone market as a whole than take share from existing players. That's why we remain buyers of MOT and NOK stock as of today's close, considering that both maintain sound balance sheets, great technology and breadth, and resonable valuation metrics.

Yeah. Despite some nagging OS issues and some bizarre feature omissions for such a powerful phone, I like my new Palm Treo 700wx, and would very much like to stick with it. I've been using it here in the real world (versus SF's Shiny Apple World) to keep in touch with the folks back home.

Plus, I won't be forced to buy music from iTunes. Ever. Junky restrictive DRM.

Hear that Microsoft (MSFT-$29.96)! I stopped by Little Redmond here at CES today, and the giant booth looked exactly like it did last year. Time for Microsoft to turn the page and start writing what's next. Great to see them close to delivering, though.

MPC member Intel's (INTC-$21.03) booth was designed similar to 2006's, too, but showed Core 2 Duos and Quads on display making pretty the exploding bodies in the hard-core gamers section and the high-end graphics rendering elsewhere.

After snaking through the throngs at those two sites, I mall-walked around the massive odes to liquid crystals (yes, I spoke too soon about their "just a supporting role" on yesterday's missive) and gas tubes put up by LG, Panasonic, Philips, Samsung, Sharp, Sony and Toshiba.

I'm beginning to believe they are all one big company, as there seems to be increasingly less differentiation among them as each expands its product line to include still and video cameras, high-def DVD players, home audio components, flat panel displays, portable devices, home phones...

Sony had one thing that set it apart, of course, the PlayStation 3. Saw some games - boy they were pretty. Didn't go hands on for fear of looking lame, but the box earned some more of my respect. Still not gonna get one though. Next, it's the Wii for me!

LG also lifted the buzz level a bit with its dual-format Blu-Ray/HD-DVD player, which will hopefully render the whole annoying format war moot. Let's hear it for the Super Multi Blue Player! (For reals, that's its name, but i couldn't find a corporate link.)

I figure five years and it's moot anyway, as then broadband brings us video more conveniently than the post or the store. Mr. Gates says three, but I'm sticking to my five - 7 gigs is a whole mess of bits to get down the relatively thin pipes most of us will maintain through the turn of the decade.

Another format war of sorts brewing on the stages at CES involves mobile TV, with various players lining up behind one or both of the IP-based requested delivery and broadcast models, with each segment containing various technologies, methods and manners. It'll be a big deal for the one who gets it right, and I have to think that many are hoping it won't be Qualcomm with its MediaFLO network and broadcast system, so wary are players to becoming reliant upon the San Diego-based chip maker for another key wireless technology. CDMA is Qualcomm's claim to fame, for which many believe it extracts exorbitant licensing fees. Qualcomm company reps were mum on their intentions for licensing MediaFLO technology, developments in which will be fun to review.

Back to the issue of "relevance", sneaking its way into still-small, but at least more prominent booth sets were discussions of green device builds and recycling, a hopeful trend for those of us concerned about ground contamination, resource depletion and e-junk landfilling.

And the last takeaway of the day was the extreme focus on wireless content distribution. Like cutting the medium out of the picture for movies by using broadband, companies are seeking to rid our homes of wires by using a combination of personal, local and wide-area wireless networking technologies, including Bluetooth, 802.11n and WiMax, in that order. Various other proprietary and standards-based methods for distributing video among storage, management and display devices will fill in the gaps. Definitely some of the more relevant innovation I've seen this trip.

One more day in Sin City, then I'm back home to start working on Issue 23. Tomorrow, I'm gonna make a best effort to catch FCC chairman Kevin Martin discuss his role in shaping telecom regulation going forward.

Okay...I just went back to the Apple Web site to grab the link for the iPhone. I may just start buying from iTunes again. Just maybe.

M.M.

Al Frank Asset Management, Inc.
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