iPhone Disappointment and The View From Research In Motion’s Chairman

The battle over prospects for AAPL stock continues, raging now on two fronts: (A) whether Macs are better than PCs and have a shot at gaining market share now that the internet handles so many computing tasks and, (B) whether the iPhone can live up to sales forecasts.

Dennis Page of Beverly Hills, Michigan thinks initial iPhone disappointments increase the chance of later growth, and that Macs are destined to gain market share over PCs and all their problems:

The iPhone seems to have limitations by design for business users. I think that this means that Apple has additional growth opportunities in reserve.

We use over a hundred thousand PCs in our corporate environment. All are networked and online. Given that our PC hardware and software builds are controlled, we have relatively few problems. It is possible to design a stable and useful PC. I have been as careful as one can reasonably be to control my PC at home, and yet my home PC is buggy due to software defects in Windows XP and various third-party applications. This is an opportunity for Apple.

And, now, I have to upgrade my graphics card and stop using some key applications to upgrade to Vista, assuming that I can successfully pick the correct one of the five versions of Vista. So, I have decided not to upgrade. It will be a losing proposition because sooner or later Microsoft will drop support of Windows XP, which is absolutely necessary to protect against security threats. This is an opportunity for Apple.

Because Microsoft is forcing me to replace my PC, I am converting to Macs at home. Apple controls the hardware and software more closely than Microsoft, Intel, HP, Dell and others. All the software I want is available for the Mac.

However, this is not a perfect world. Please don’t let anyone convince you that a Mac never crashes. There is a healthy cottage industry on how to troubleshoot Macs.

I am convinced that the iMac, iPod and iPhone markets will grow, and that Apple has additional growth opportunities for these and, perhaps, future products. So, I’m sticking with AAPL.

I felt the same way when I bought my latest PC and spent the first eight months troubleshooting a mysterious meltdown that happened like clockwork two weeks after each complete system reinstall. Calls to HP support in India yielded nothing but hours lost on the phone while they went through everything I knew wasn’t the problem. I tried their chat line and made no progress whatsoever, except to understand that all it takes to be considered a J.D. Power & Associates qualified support provider is using the customer’s name condescendingly as you fail to address the issue, like this:

“I understand the frustration this is causing you, Mr. Kelly.”

“I’m sorry that this has inconvenienced you, Mr. Kelly.”

“No, we can’t send your replacement CDs to Japan, Mr. Kelly, despite our being a global company that greatly values your business. Is there anything else I can help you with today, Mr. Kelly?”

And so on. Nothing was ever resolved until my publicist’s brother-in-law who works for HP in Colorado took it upon himself to help, and figured out that I had a faulty gigabyte of memory. With his taking responsibility for the problem, I had a replacement within a week and haven’t had any trouble since.

Still, what if I hadn’t been blessed by the six degrees of separation that brought somebody at HP into my circle? Why couldn’t the supposedly capable gang in India figure out before almost ten complete system reinstalls that the memory was to blame? All it took was a simple diagnostic test that I wasn’t aware of, but that a tech support specialist should know about.

Yesterday, IT specialist Dale Stamps pointed out that PCs are bound to have a lot more problems reported because they exist in ten times the volume of Macs. Then, today, Dennis refers us to a page that sells a book that troubleshoots Mac problems.

Sure, everything has some amount of problems. I once owned a razor that wouldn’t hold the blade in place and needed a replacement, but that doesn’t mean that razors in general are as unreliable as, say, Windows ME was.

There seems to just be an accepted wisdom on the street that PCs are buggy and nightmarish, and Macs aren’t. My own experiences and what I’ve heard through my friends and colleagues bears that out.

Charles Jarrell made a good point about the vast quantities of PC software available online:

Being able to download more software is a double-edged sword for the PC. You can download lots of cool software, and some very bad viruses, too.

True enough. I’ve heard that Macs are far less vulnerable than PCs. Whether that’s because with such a relatively small market share Macs are not as appealing a target to virus makers, or that Macs are inherently better protected, I’m not sure.

This conversation began with my doubting that the iPhone would meet overly optimistic sales projections, thereby creating an opportunity to profit down the road from shorting AAPL stock after its overly ebullient iPhone appreciation.

So far, the appreciation continues, of both the phone and the stock. Since the phone’s debut on June 29, AAPL is up 10%. Year-to-date, it’s up 56%. The more it rises, the more fans point to it and say, “See, the phone is driving the stock!” Perhaps, but it’s also stretching the rubber band further to make what could be a heck of a profitable short-sale snap back in case Apple doesn’t sell the 12 million iPhones next year that Goldman Sachs thinks it will sell.

From a CNN article yesterday:

Although official sales numbers have yet to be released, many consider the iPhone debut a success. However, with the early adapters and Apple enthusiasts among the early buyers, and concerns bubbling about the phone’s network limitations, high price and potentially short battery life, some are wondering if Apple can maintain the momentum needed to achieve its ambitious sales goals.

Add my name to the list of “some,” despite my admiration of Apple as a company, Steve Jobs as a tech visionary, and even of the iPhone as a revolutionary product.

Several people wanted to know if the iPhone’s weaknesses will be a boon to Research in Motion (RIMM), maker of the popular BlackBerry.

I displayed here last Friday this note from Jeff in New York:

Assuming your assessment is right, would you say it is logical to assume we can expect at least a short-term favorable position for the iPhone competitors, like Research In Motion?

To which I replied:

Well, RIMM has been on a tear for so long that I don’t think it needed the iPhone as a boost. RIMM is up 238% since last August, and up 64% since the beginning of May. I’m watching RIMM as a possible short, too, as I have been since January. Good thing I watched instead of acted.

Research in Motion has a heck of a head start on Apple. Look at these excerpts from comments by Research in Motion Chairman Jim Balsillie in the June 28 conference call:

Fiscal 2008 has gotten off to a great start with revenues, subscriber account additions, and earnings all exceeding the range we discussed on the last call.

The strong performance was driven by new product launches such as the 8830 World Edition, BlackB
erry Curve, and BlackBerry 8800; channel expansion; and strong growth in both the North American and international markets.

Today, we also announced a 3-for-1 stock split in the form of a stock dividend. We believe we will continue to grow significantly over the next several years, and this stock split will make the share price more accessible to investors.

We added approximately 1.2 million BlackBerry net subscriber accounts during the quarter, which was higher than our April forecast of 1.13 to 1.15 million and was 18% higher than the 1,020,000 subscriber accounts added in Q4.

We shipped a record number of devices and we expect to ship our 20 millionth BlackBerry device this summer.

The BlackBerry Curve was launched near the end of the quarter and has just begun to ramp in Q2. The device weighs only 3.9 ounces, and offers innovative features and enhanced multimedia capabilities, while maintaining exceptional battery life.

The BlackBerry Curve is the first BlackBerry handset to offer a 2 megapixel camera and spell checker for email, and the addition of the Roxio multimedia player provides an enhanced multimedia user experience.

The Roxio media manager software allows users to easily search for media files on their computer, view and organize them, create MP3 music files from CDs, add audio tags, create playlists and automatically copy or convert pictures, music and videos for optimal playback on the device.

Reviews of the Curve have been exceptional. As Mike Elgan at Computerworld aptly put it, “RIM has taken the best feature from every phone it’s ever sold and built them into a single device. And the phone of year will earn its position at the top the old fashion way, not because it is the most revolutionary gadget, but because it will probably be the best phone. The BlackBerry Curve has the mark of destiny upon it.”

T3 Magazine said, “Slim, sexy and oozing business class smartphone skills, BlackBerry’s new Curve is a dream to hold. It’s obviously smaller than its e-mailing ancestors and attracts envious eyes every time it’s whipped out in public.”

He went on to detail the many countries in which BlackBerry devices are available.

Keep in mind that while the iPhone costs either $500 or $600, the BlackBerry Curve is just $200, and that includes a two-year contract.

In that same conference call, Mike Abramsky from RBC Capital Markets asked Mr. Balsillie if the BlackBerry would benefit from the iPhone’s launch. Here’s part of Mr. Balsillie’s response:

“I think they did us a great favor, because they drove attention to the converged appliance space and particularly [helped popularize the idea] that you should expect media as a software app on your converged smartphone, [a category in] which we’ve built clear market leadership, and so I think the awareness and interaction they built there is really key. iPhone is launching, to the best of my knowledge, in one carrier and one country and we’re in about 100 countries and 300 carriers.”

Obviously, Apple will expand past its one carrier and one country. The point is that RIM is not being caught off-guard by any means. Eight years ago, it approached the Chinese market for permission to sell BlackBerry devices there. Finally, just last week in an amazing coincidence with the iPhone’s launch, RIM received permission. It will begin selling in China at the end of August.

More than anything, it probably comes down to which style of device people prefer. Eventually, Apple will get to all the markets that the BlackBerry is in. Eventually, it will have more than just AT&T; as a partner. Then, consumers will have to decide which device offers the most bang for the buck.

Don’t put it past Apple to dislodge the market leader. One of the greatest upsets in business history is how the iPod threw Sony to the dirt and pulverized it in the mobile music industry. Sony was once the whole menu in mobile music. Remember how dominant the Walkman and Discman were? Now, even here in Japan, nobody wants a Sony musical anything. It’s all about the iPod.

One day, mobile telephony could be all about the iPhone. That one day is a long way off, though, and I continue to think that disappointment will precede triumph in the iPhone story.

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