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Is the iPhone the Next iPod or Mac?

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We're now surprisingly deep in Apple's (NASDAQ: AAPL  ) iPhone product life cycle.

The iPhone 5 is the sixth generation of the tech giant's trendsetting smartphone. The device shows no signs of peaking. Every annual installment eclipses the model that came out a year earlier. Apple's going to have a blowout holiday quarter, and even the bears know it.

How big will the iPhone get, though?

Raymond James analyst Tavis McCourt tends to think that the iPhone will likely wind up being closer to the company's flagship Mac -- a high-end product cornering a small yet loyal segment of the market -- than the ubiquitous iPod which was the market leader until portable media players began fading in popularity.

He's right, but that isn't necessarily a bad thing.

Emerging opportunities
There will naturally be price limitations that will forever keep Apple's smartphone market penetration in check.

It may not seem that way in this country, where new iPhones are available for $199 -- and older models can be had for as little as free -- with two-year contracts. Carriers can afford to subsidize the handsets, knowing that paying Apple more than $350 will be more than made up after billing customers four figures during the two-year contract.

Carriers in many overseas markets, particularly emerging countries where $100-a-month wireless plans just won't fly, have no choice but to sell full-priced iPhones alongside the cheaper smartphones that most customers will ultimately choose.

Apple would love to compete, but it would much rather make its chunky profits. It makes more money with 14% of the market than Samsung does with 33% of the market. Why mess with the formula?

There may never be another iPod
The iPod -- in its prime -- was hard to beat. No one was subsidizing iPods, so Apple had to keep its prices competitive. Microsoft (NASDAQ: MSFT  ) was willing to sacrifice margins to gets its Zune established. It offered a sharing feature that wasn't available on iPods. SanDisk (UNKNOWN: SNDK.DL  ) had a manufacturing advantage as the global market leader in flash memory. It had no intention of backing down. It didn't matter. Apple was the dominant player in the market, and Microsoft and SanDisk remained distant rivals.

Apple has been the market leader in the tablet market with its iPad, but how long will that last? Android is picking up steam, and let's not write off Microsoft until we see if Windows 8 takes off on tablets.

The iPod was a unique situation, but what did that do for Apple? The company is more profitable now with the iPhone than it was years ago when the iPod was hot.

There's no shame in having just 15% of the market now -- and probably even more this quarter with the iPhone 5 -- when it all translates into a big fat number on the bottom line.

Apple of my eye
here is absolutely no argument that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and more importantly, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

Read/Post Comments (2) | Recommend This Article (6)

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 November 20, 2012, at 5:36 PM, applefan1 wrote:

    Apple STILL continues to sell more product than they can ship even without at T Mobile, China Mobile and other relatively large carriers.

    If Apple was to sign China Mobile right now, they would be inundated with orders that they'd have to push back orders at least a couple of months.

    Apple's biggest problem is making them fast enough.

    once Apple get their fingerprint security on the market, that might make a big push for Corporate, Military, Government sector which aren't as price conscious.

    I think Apple understands Apple much better than outsiders. they know their own trends and see a HUGE potential in growing the China market, which is bigger than the US market once they get a handle on it.

    Apple is still building more Apple Stores and they are packed with people buying product..

  • Report this Comment On November 21, 2012, at 12:23 AM, Secs27 wrote:

    To CaEv-

    There is no company that has the product lineup of Apple. Their iPhone 5 and iPad 4 are the best in their class with no competition. Amazon & google are not in the same league as the iPad. Have you used the kindle or the nexus and then used the ipad4. The iPad is much, much faster, it is smooth and fluid, unlike the clunky and unstable android. The apple is built like a bank vault and is a work of art. The nexus and the kindle are plastic junk. The apple works perfectly with no issues. Both the kindle and the google crash with "forceclose" error messages. The iPad is being adopted in the professional and enterprise arenas because it is powerful and reliable. I highly doubt you'll see your doctor checking his X-rays and patient records on a crappy kindle.

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