Today's Top Tech Stories: More iPhone 5 News, and Has Netflix Lost Its Mind?

The Nasdaq opened sharply lower today but rallied in the late afternoon on its way to closing down 0.36% among some interesting developments across the technology world. Here are two of the top technology stories that have developed over the past 24 hours.

Tech News No. 1: Has Netflix lost its mind?
Last night, longtime Fool favorite Netflix (Nasdaq: NFLX  ) announced in a blog post that it planned to spin off its disc-based service from its booming streaming business. It was an odd move; the post began by apologizing for a previous PR snafu and then created a new one.

As described by CEO Reed Hastings, the split will come with some negative side effects:

A negative of the renaming and separation is that the Qwikster.com and Netflix.com websites will not be integrated. So if you subscribe to both services, and if you need to change your credit card or email address, you would need to do it in two places. Similarly, if you rate or review a movie on Qwikster, it doesn't show up on Netflix, and vice-versa.

Not only consumers but also analysts have latched onto this point. Not only does this reduce the effectiveness of the company's movie-recommendation algorithm that is has long prided itself on, but it also creates a headache for consumers who now have to switch between two services.

It's long been known that Netflix saw digital delivery as its future and its mailing service as a fading cash cow funding growth into new areas, but I'm not completely sold on the need to separate the businesses. We'll have to see how the split occurs in its final form, but the streaming business gleans a lot of additional insights beyond movie recommendations.

Take movie-rental histories, for example. The strength of the company, which is expected to tally 24 million subscribers at the end of the month, has always been that customers rent an outsized portion of older "catalogue" titles. This created better economics, as the company wasn't buying up huge amounts of newer movie titles that would be popular for a matter of months but would shortly thereafter become bloated inventory that was rarely rented.

Netflix could use the rental history of its unique customer base to glean insights on titles that saw outsized popularity and license them for streaming use. I'd bet this is a key reason the company shelled out so much money to license Mad Men; rental histories showed that the TV series appealed in an outsized way to its audience and that Netflix would get a good return even if it paid up to $100 million for the series alone.

We'll have to see what the limits on being "not integrated" are, but I hope it doesn't eliminate these unique advantages. At the least, Netflix should explore whether it went too far in splitting the companies and see what sort of technology partnerships are available that will keep up any advantages it gains from its DVD business.

I applaud Netflix's continued laser-like focus on dominating a niche that's seen encroachment from several giants, including Amazon.com (Nasdaq: AMZN  ) and Google (Nasdaq: GOOG  ) , but the continued blog posts from company leadership on major changes haven't addressed customer concerns and sound, well, arrogant.

Tech News No. 2: Apple keeps soaring
Apple
(Nasdaq: AAPL  ) brushed off general market pains and burst out to a new all-time high today. The company's stock now trades at $411.63, and its market capitalization sits at a whopping $381 billion. Why is Apple continuing to set new highs while the rest of the market suffers?

Continuing rumors around the launch of a new iPhone could be a key catalyst. A note from JPMorgan published research on Monday pointed not only to a new iPhone 5, but also to an iPhone 4-plus that would target the Chinese markets.

Just about anything Apple- and China-related gets investors' hearts aflutter. That's not without merit; the company has invaded China in a way few investors foresaw. Despite the high selling price of iPhones, the company managed to grow sales in the country sixfold last quarter and has seen $8.8 billion in sales to Greater China so far this fiscal year.

An improved iPhone 4 could be important because it'll offer a premium Apple product in a lower price range that could appeal to more consumers in the country. There has been quite a bit of speculation that Apple might offer a smaller and cheaper prepaid iPhone to compete with inexpensive Android and Nokia (NYSE: NOK  ) offerings in the country. However, Apple so far has seemed intent on a strategy of marketing last-generation iPhones as its entry-level offering. This approach worked with the iPhone 3GS -- which is still a strong seller more than two years after its launch -- and branding a "plus" version with some smaller incremental offerings could further add value to budget-conscious phone buyers.

One last point about the possibility that Apple could continue a strategy of offering last-generation iPhone models at a cheaper price: Don't forget about the component side. While Apple will do its best to wring price concessions from Samsung on its processor and its flash memory and RAM suppliers, it probably won't touch many of the more specialized chips in the phone.

That means if you're the owner of Cirrus Logic (Nasdaq: CRUS  ) or Omnvision (Nasdaq: OVTI  ) -- which produce the audio chip and camera sensor, respectively -- this strategy works to your benefit. Instead of fighting for a place in a cheaper prepaid offering, any win in an iPhone product line assures two years of profiting from Apple's growth -- one year when the phone is Apple's premier model, and another year selling in the older "value line."

That's it for today's tech recap. To stay apprised, add any of the major companies mentioned here to our free My Watchlist service today:

Eric Bleeker owns shares of Cirrus Logic. You can follow Eric on Twitter to see all of his technology and market commentary. The Motley Fool owns shares of Google, Apple, and Cirrus Logic. Motley Fool newsletter services have recommended buying shares of Google, Netflix, Amazon.com, and Apple, buying puts in Netflix, and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On September 20, 2011, at 1:54 PM, MoatStocks wrote:

    Apple has added second source since its going for much higher volumes with iPhone5, next iPADs, at the same time continuing with older models. While OVTI has to share this market with another supplier - its going to be much larger TAM than in 2010 - and shipments to Apple might well be higher than before.

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