Apple 2.0

Covering the business that Steve Jobs built

Apple's "sticky" iPhone

February 10, 2009: 11:25 AM ET

leaning iphone 3g (clean)When Barclays' Ben Reitzes refers to the "stickiness" of Apple's iPhone, he's not talking about adhesives on the product's surface. (Indeed, the iPhone seems to us as slippery as ever, which may be why there's such a lively market in protective cases.)

What he's referring to in a report to clients issued Tuesday is a lock-in effect, whereby iPhone and iPod touch owners who buy from the App Store become increasing unlikely to switch to a competing product. Reitzes calls this a "key differentiating factor":

"This software strategy enables a distinctive "stickiness" for the iPhone, which should enhance customer loyalty over the long-term. We believe 'apps' personalize iPhones to levels that competitors cannot match. We also believe strong interest in the App Store is helping to pull through iPod touch units."

Reitzes' note was one of several generally positive reports on Apple (AAPL) issued this week by analysts who track the stock.

  • FTN Equity Capital Markets' Bill Fearnley raised his rating on the company from "neutral" to "buy," citing growing investor sentiment that Steve Jobs' medical leave won't be as disruptive as originally feared. (link)
  • Kauffman Bros.' Shaw Wu echoed that sentiment, saying that investors today seem less concerned about Steve Jobs' health than his products' high prices. Wu argues that Apple is relatively immune to recessionary pressures because computers and cell phones have evolved into necessities -- so essential to modern life "that people are willing to pay a premium to make their lives easier and more productive."
  • Barclays' Reitzes sees positive signs in the imminent release of the 17-inch MacBook Pro (scheduled to start shipping next week), expected updates of the iMac and Mac Pro (sometime this quarter), and the upcoming release of Mac OS X Snow Leopard (in June, he says) "with out-of-the-box support for Microsoft Exchange 2007, multicore support, QuickTime X, Open CL, location and multi-touch tools."

Fearnley set his price target for Apple at $140. Reitzes and Wu are staying pat at $113 and $120, respectively.

Apple shares dropped more than 4.5% in Tuesday's market free fall to close at $97.83.

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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