Apple's Killer iPhone Strategy

The new iPhones are here! The new iPhones are here!

With all of the anticipation built up around the new Apple (Nasdaq: AAPL  ) iPhone, I almost expected Steve Martin to come charging across the stage at Apple's developer conference to herald one of the most predicted events of the young summer. Blogs and other sources had pieced together months ago just about every new feature in the updated device, but CEO Steve Jobs still gave plenty of new insight on the direction for the iconic smartphone media device.

As expected, Apple's next-generation iPhone contains a host of new features, including the capability for broadband speed, GPS navigation, and corporate email access. Apple also confirmed the rumor that a version of the new phone will carry a $200 price tag, so it should penetrate deeper into the mass market without cannibalizing other products. But for investors, there are a few important takeaways hidden in all these new features.

First is the news that exclusive U.S. partner AT&T (NYSE: T  ) and Apple will no longer share subscriber revenues on the new iPhone. In exchange, AT&T will subsidize the cost of the device to hit the retail offering price, which actually comes in at $199. AT&T anticipates that this move will affect earnings per share by $0.10 to $0.12 this year and next, but it expects to make more money in the long run, because iPhone users spend almost twice as much as the average AT&T user does.

The other important point is that the iPhone will now compete more evenly in the global smartphone space. With a subsidized price and broadband speed, the iPhone will be more attractive stacked up against the latest Nokia (NYSE: NOK  ) handset or Research In Motion (Nasdaq: RIMM  ) BlackBerry. This appeal, combined with a footprint of more than 70 countries, gives Apple a real shot at hitting 10 million iPhone sales this year. And if Jobs really can get China Mobile (NYSE: CHL  ) and a top Russian operator such as Mobile TeleSystems (NYSE: MBT  ) or VimpelCom (NYSE: VIP  ) on board as well, look out.

I think Apple would have a hard time cracking the corporate market anytime soon, but capturing the larger mass market will help. Overall, investors should be impressed with Apple's next-generation phone. It gives up recurring revenue, but I expect device sales in global markets to flourish under the new model -- and to set the stage for even greater things to come.

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Fool contributor Dave Mock still uses phone books, but he doesn't get too excited when the new ones show up. He owns no shares of companies mentioned here and is the author of The Qualcomm Equation. Apple is a Stock Advisor pick. The Fool's disclosure policy looks quite good in a black turtleneck.


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  • Report this Comment On June 10, 2008, at 4:24 PM, CRAIGVALENTINE wrote:

    My Blackberry from AT&T works fine in every country around the world. In fact, it works quicker outside the USA than inside.

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