Monday, April 23, 2007

Leopard Delay, iPhone Hype - Apple Knows What It Is Doing


Instead of debuting Leopard at the Worldwide Developers Conference in San Francisco, CA, this June 2007, Apple Inc. (AAPL) will release "a near final version" of Mac OS X 10.5, a sort of preview of the complete feature set at that time. Bad news? Perhaps for the fierce Mac users, but overall? Hmmm. Let me check the facts first.

iPhone is right on track – passing several required certification tests and is expected to start shipping in late June as originally planned. The device is touted to have the most sophisticated software ever shipped on a mobile device, and finishing it on time has come with a price. Engineering resources at AAPL have reportedly been diverted from Leopard to the mobile device, possibly indicating the firmness of Apple's belief that the market holds tremendous promise and business opportunities for the entity.

Despite its forecast of modest sales in the initial year of release, Apple may capitalize and leverage on the hype surrounding the iPhone (e.g., integration of perceived faults of the device such as 3G technology) to eliminate any negative effect on third quarter Mac sales. However, there will still be an earnings hit for that quarter, albeit minor, and Apple knows that its stock may trade on the mobile communication device for a number of weeks.

Apple Inc. has learned well from Microsoft Corp.'s (MSFT) failure to generate positive buzz on Vista. Besides preventing a spill of the negatives associated with Vista's failure over to AAPL's Leopard, it is possible that Steve Jobs has realized that the Mac has been over-rated as a near-term sales driver! Thus, Jobs is positioning the iPhone for short-term cash infusion and the Leopard as the icing on the cake for the long-term haul because, after all, the complete integration of a new OS in both the enterprise and individual level takes around 10 to 12 months. And the decision to allocate resources from one division to another highlights Apple Inc.'s inherent ability to quickly move and shift talent; a lean and mean company with no bloated head count overhead. It also underscores an important fact in the industry, i.e., that a first-release product demands more resources in terms of testing and integration.

After all is said and done, one thing is crystal clear: Apple understands what it is doing. It expects modest sales (iPhone) in the first year. But wait. What if it overshoots its initial target of 10 million units? Possible? You bet! Steve Jobs has that gift of creating hype and excitement around his products and cementing it with releases perfectly in-tuned to the times. And coupled that with luck, maybe Jobs can repeat history. After all, the Nintendo (NTDOY.PK) Wii was initially laughed at (it was just a year ago that Sony's PlayStation (SNE) and Microsoft's Xbox were the king and queen of the video game industry), and everyone sneered at the iPod when it first came out (everybody said Sony's Walkman was, i.e “invincible”). Tsk.

Investment banks support Apple's decision to delay the debut of Leopard in light of the perceived future success of the iPhone. And why are they are not at all worried? As stated earlier, the delay of the Leopard is earnings driven and could be viewed as a buying opportunity. The delay is indeed a temporary setback for AAPL but, admit it or not, it is a wait designed to ensure and promote long-time success for the company and its products.

Steve Jobs firmly believes the iPhone as the key factor to drive the next phase of the company's growth. The company has a major strategic advantage over other phone manufacturers, i.e., they have iTunes and the license agreements to sell digital music from the majority of the record labels. And you better believe that AAPL will capitalize on these. And being the key driver and all, another delay is the mobile phone's release would do a significant amount of damage to the credibility of both the firm and Jobs than a temporary setback in the debut of Leopard. Do remember that the iPhone was officially introduced way back January 2007, not counting the rumors and buzz on the blogosphere. However, its commercial debut was set for June 2007, which further prolonged the wait of fierce loyal Apple followers and the rest of the world.

And why half a year, you ask. Maybe, Jobs wanted to know how Microsoft Corp. will do with its Vista, particularly the acceptance of the OS with consumers. This is very important for Apple Inc. because its Leopard was also set to be introduced in the same year as Vista's. And with the Vista threat out of the picture, Jobs and company possibly can't do anything wrong with their decision to allocate additional resources for the iPhone, ensuring that all the perceived flaws and shortcomings of the device are well taken care of. All the hype that surrounded the iPhone and the long, long wait has favored Apple and its products well...people wouldn't mind a setback in the Leopard's release but they will with the iPhone! Thus, with this strategy, the public will have their iPhone "on time" as Jobs successfully buys more time for his buddies at Apple Inc to iron out the bugs, kinks and stinks in Leopard, the OS that will bring in the money for the long haul.

And I am reiterating it again: Jobs has this gift of successfully timing his product launches in-tuned with the times. The success of the iPod has made Apple Inc believe that the sky is indeed the limit. And with a little luck and a very good marketing roadmap, the iPhone may open up another sky for AAPL.

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