How Big Is the iPhone Opportunity?

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Magical. Revolutionary. These are the words Apple (Nasdaq: AAPL  ) co-founder and CEO Steve Jobs uses to describe his company's iProducts.

"iPhone is a revolutionary and magical product that is literally five years ahead of any other mobile phone," Jobs said in introducing the iPhone in 2007.

So far, he's been right. Apple has already sold 50 million handsets, and media reports say that AT&T (NYSE: T  ) has already taken 600,000 pre-orders of the new iPhone 4. This looks like yet another iWinner in the making.

Skeptics such as Tomi Ahonen say the new handset cedes a huge chunk of the smartphone market to Research In Motion (Nasdaq: RIMM  ) and Nokia (NYSE: NOK  ) for failing to include a QWERTY keyboard.

Others will tell you, rightly, that Palm (Nasdaq: PALM  ) was well ahead of Apple in allowing two or more apps to be active at the same time, a process known as multitasking and a signature feature of iPhone 4.

And, of course, there's AT&T, whose security gaffes have caused trouble for first the iPad and now the iPhone. Gawker reported yesterday that users who pre-ordered the device may have had their personal data exposed.

Troubling? Sure, who wouldn't be troubled by these breaches? But I'm not convinced they'll halt Apple's momentum. Nor am I convinced that Google's (Nasdaq: GOOG  ) big Android partners, Motorola (NYSE: MOT  ) and HTC, will blunt the iPhone's edge.

Instead, I see this as becoming a two-horse race in which the major app platforms -- iPhone and Android -- vie for dollars. Apps are catnip for today's mobile users and these platforms are attracting more than their share of coding talent.

But I'd still bet on the iPhone over Android because of its international reach. China has taken to the device. So has South Korea. In each case, Apple has left open the possibility of doing business with more than one carrier.

How big is Apple's iPhone opportunity? By volume and scope, bigger than anything the company has ever undertaken. That's why growth grabbers continue to like the stock at these levels.

But that's also just my take. Now it's your turn to weigh in. Tell us what you think about the iPhone opportunity by voting in the poll below. You can also leave a comment to explain your rationale.

More Apple Week Foolishness:

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Fool contributor Tim Beyers is a member of the Rule Breakers stock-picking team. He had stock and options positions in Apple and a stock position in Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy is feeling surprisingly perky today.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 18, 2010, at 4:18 PM, daveshouston wrote:

    You shouldn't think about the iPhone as a stand alone device. You must think of it as one device in Apple's iOS family. The other two devices which use this OS and sync through iTunes and the App Store are the recently introduced iPad and the iPod Touch.

    Apple has already sold over 100 million iOS devices. I'll bet they reach 200 million much faster (within 12 months). Also consider that these devices will likely be upgraded on about a two year cycle vs. the typical four years for PCs.

    Apple enjoys 95 percent plus customer satisfaction. If you have 200 million customers upgrading every two years then you have 100 million unit sales each year just from captive upgrading customers.

    There is a very strong rumor that Apple will soon release iTV which is a small iPhone size device without a screen. You hook it to your large screen HD TV and your television then runs iOS.

    The real hero of this story is the iTunes ecosystem. When I first got the iPad I plugged it into my computer's USB port and synced it to iTunes. Twenty minutes later it was fully loaded. All my contacts, bookmarks, photos, videos, calendar appointments, apps, and music were on it. It mirrored my iPhone. I then downloaded another twenty or so Apps that have been specifically designed for the iPad and it was good to go. I already knew how to use it (just like my iPhone). So my iPad, iPhone, MacBook Pro, and my wife's iPod Touch all have the same info, music, videos, etc. and they're constantly updated. I don't even have to think about it. I have to charge the batteries anyway. By plugging into the USB port of the computer I get a battery recharge, an automatic backup, and automatic file syncing.

    Now contrast that with what my life would be like if I had a Blackberry Mobile Phone, a Zune MP3 player, an HP tablet, a Windows netbook, a desktop computer running Linux, and my wife had an iPhone. I can't imagine a worse nightmare.

  • Report this Comment On June 18, 2010, at 4:38 PM, marv08 wrote:

    Well, you are right – Apple is eating up more and more of the upper end internationally and they saw it coming early enough. A significant percentage of their store openings is outside the US now, they try everything possible to launch products in other countries simultaneously with the US launch... they truly got it.

    The iPhone 4 will be in short supply for all of 2010 and beyond. At least 2 out of 3 people I know intend to get one. Apple could certainly sell 4-5 million devices over the first weekend, if they only had that many.

    Android is still absolutely meaningless outside the US and Android devices do still not qualify as business devices either - they are years behind Apple and RIM in this regard (I could not even connect an Android phone to our VPN if I wanted to or mass-deploy profiles to our several hundred users).

    Maybe you should ask the "sceptic" (Nokia-shill would be the correct term) Tomi Ahonen, why oh why the Palm Pre was a complete and utter failure, despite having a keyboard? Or why the iPhone outsells the N97 by miles? This guy is clueless and his only fan. Better quote Dvorak or Moritz - at least they are entertaining when they are wrong (and they always are).

  • Report this Comment On June 20, 2010, at 2:23 PM, stanpowellwg wrote:

    How many apps does one need? I own Rimm and a Blackberry and like the availability of essentilal apps and email. It is a phone afterall, not a tool to watch TV or play games at work. Maybe that is what we are coming to as a nation. A 6 hour workday and 2 hours to play with our phones. A great way to be more productive.

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