Apple 2.0

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iPhone 4: The analysts weigh in

June 8, 2010: 10:06 AM ET

The Tuesday morning quarterbacks had a lot to say -- mostly positive -- about the new phone

Steve Jobs demos FaceTime. Photo: Jon Fortt

We got a handful of notes from Apple analysts including Piper Jaffray, Morgan Stanley and Forrester Research Monday afternoon after Steve Jobs' keynote (See iPhone 4: The early reviews).

On Tuesday morning, we got a basketful. A sampling of what they had say, in roughly descending order of enthusiasm:

Oppenheimer's Yair Reiner: The dribble of leaks that preceded yesterday's official unveiling of the iPhone 4 probably left some with the impression the new device offers nothing surprising or very new. Sound familiar? In fact, Apple's (AAPL) latest refresh catapults the smartphone category forward along every axis of relevance to consumers: OS sophistication, speed, battery life, display resolution, video connectivity, and camera quality. If products like the HTC Incredible demonstrate that Apple's competitors have significantly improved their game, the iPhone 4 suggests the stronger competition has sparked an almost fierce level of innovation at Apple. The competition is taking aim, but the target keeps moving faster. Reiterate Outperform and $320 PT.

BMO Capital's Keith Bachman: We believe FaceTime (video calling) is a game changer and must-have feature that could provide huge upgrade potential, since FaceTime only works on the new iPhone 4. If we assume 20% of the approximate 50 million installed base upgrades to the new iPhone 4, then 10 million iPhones would be upgraded and replaced, which provides us with confidence in our September- and December-quarter unit forecasts of 10.2 million and 12.2 million, respectively.

Kaufman Bros.' Shaw Wu: We believe the rich features, refinement, and higher build quality are worth noting and difficult to comprehend without seeing and using the new iPhone first-hand (which we had the pleasure of doing post keynote). ... We believe the new iPhone 4 will likely drive upgrades here in the U.S. and sway some users to switch to AT&T (T).

Susquehanna's Jeffrey Fidacaro: Video, video, video -- Apple leaps ahead of the competition. In our view, Apple's strategic focus on improving display, both rendering and resolution, along with video capture has been a key competitive advantage for the iPhone. Now, Apple takes another step ahead of the smartphone competition by also adding native video calling capability.

BCG's Colin Gillis: Like all things Apple, it's not just the whiz-bang hardware of the ultra slim phone, display and battery -- but the overall package including the ability to shoot, edit, and share HD movies. The other major showcase was the iOS operating system with its multi tasking and support for the iAds platform. We are disappointed that the phone is not going to be in stores until June 24th -- after Father's day.

RBC Capital's Mike Abramsky: The "repositioning" of Apple's iPhone OS -- to iOS -- at WWDC accelerates Apple's (re)assault to lead personal computing, as the industry evolves to mobile. Apple now brings iOS's simplicity, user experience, iTunes integration, developer momentum and cross-platform across all future Apple mobile devices... While iPhone 4 features (and 3GS $99 pricing) were largely expected and its network remains AT&T, we foresee a strong upgrade cycle... RBC estimates that 18-20 million 2G/3G owners are upgrade eligible, and RBC survey data shows 50% "likely to upgrade", equating to 9-10 million prospects.

Thomas Weisel's Doug Reid: Overall iPhone 4 meets but does not exceed our expectations for the device going into the event. Noting the absence of a new carrier announcement in the US and a June 24 shipment date for iPhone 4 (vs our prior expectations of early July) we are leaving our iPhone estimates unchanged at 8.59mn for the June Q and 12.08mn for the Sep Q. We reiterate our Overweight rating and price target of $340. ... Although we expect iPhone to enjoy a steeper international ramp than prior iPhone launches (88 countries by the end of September), we expect US sales growth by comparison to lag prior launches as US consumers increasingly focus on network quality, where AT&T and AAPL clearly lag and where a growing field of Android choices continues to blunt the cutting edge of AAPL's iPhone.

Deutsche Bank's Chris Whitmore: Apple announced iPhone customers on AT&T will be allowed to upgrade 6 months early. We do not view this as benevolence but as a calculated move to lock-in customers with two year contracts prior to losing exclusivity. In addition, we believe AT&T's entry data plan price cut from $30 (unlimited) to $15 (restricts downloads to 200MB) will drive incremental iPhone demand (lowering the user's TCO). In aggregate, we believe the combination of the attractive form factor / functionality of the iPhone 4 and early upgrade option will drive robust iPhone 4 unit shipments. We view our 41M CY10 iPhone unit estimate as conservative... We believe the video calling feature (iPhone 4 to iPhone 4) will spur upgrades as the network effect encourages faster adoption (i.e. multiple family members may upgrade simultaneously). In addition, we expect FaceTime to be rolled out across many Apple products over time (iPads, etc).

William Blair's Ralph Schackart: In our view, following a blog preview of the hardware and Apple's preview of the new software features (both occurring in April 2010), the major new iPhone features were largely expected (a front-facing camera, enabling video conferencing, improved screen resolution, and an iPad-like processor [A4], with a larger battery to extend battery life). The timely (June 24) release of the iPhone and positive comments on the iPad announcement give us further confidence in our estimates (36.9 million iPhones and 3.15 million iPads during fiscal 2010). We maintain our Outperform rating.

Morgan Keegan's Travis McCourt: In sum, the WWDC announcements by Apple were as expected. The iPad download stats are remarkable, and may be the real story of the day, and the iPhone 4's features are impressive, and will clearly allow it to maintain its dominance at the high end of the smartphone world. We had already built into our financial expectations iPhone shipments for June, and we will update our iPad estimates (which need to be higher at this point) and adjust for recent currency fluctuations over the next few weeks.

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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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