By ROLFE WINKLER
The new iPhone is sure to shatter previous sales records. It may also prove the moment to dump Apple shares.
The Apple logo adorned front facade of the Yerba Buena Center for the Arts in San Francisco.
Each new iPhone has sold as many units as all previous generations combined, Apple executives have joked internally according to recent trial testimony. And it isn't crazy to believe exponential growth can continue for at least one more. Combine pent-up demand among existing iPhone users looking to upgrade, with the possibility that the new model will finally be compatible with the world's largest carrier, China Mobile, and investors can expect explosive results.
But the device setting those records is itself likely to be just an incremental upgrade over its predecessor, the iPhone 4S. Indeed, if the latest version of Apple's mobile operating system is any guide, the newest iPhone may not look that much different from smartphones Apple sold over three years ago. Granted, the screen is expected to be larger and the device thinner. But the actual user experience isn't expected to be very different.
In one sense, that is good since a reason the iPhone is so popular is that "it just works," notes analyst Neil Mawston of research firm Strategy Analytics. The hardware, software and Apple services like iTunes are tightly integrated and easy to use, making the device appealing to a huge swath of non-techie users. That is opposed to, say, devices running Google's Android operating system, where the ability to customize can complicate the user experience.
In another sense, sticking to the iPhone's traditional design is a problem, giving rivals a chance to jump ahead with new features. The Windows Phone operating system that Nokia uses has "live tiles" that display useful information or photos directly on the device's home screen, not just dummy icons you have to touch to launch apps. The camera technology in Nokia's latest device is also likely to be superior to Apple's. And Nokia is showing its engineering prowess with, for instance, a touch screen that should work for users wearing winter gloves. Such subtle improvements have typically been the hallmark of devices designed under Steve Jobs.
Apple has other powerful advantages, including a huge ecosystem of apps. Android also has plenty, but Windows Phone lags far behind. Users that have downloaded lots of apps, not to mention other media from the iTunes store, may find themselves locked into using an iPhone. But if rivals surpass the iPhone in other crucial respects, it becomes harder for Apple to justify the price premium it charges wireless carriers to sell its devices.
Not long ago, Nokia and BlackBerry looked nearly as impregnable as Apple does today. Apple's dominant ecosystem should prevent it ever suffering a similar decline. Yet the fact that it finds itself in a hit-driven business is perhaps good reason its shares trade for just 12 times earnings for the fiscal year ending September 2013 despite growing faster than any other company in the S&P 500 in 2011, ex-acquisitions.
Once upon a time, Apple revolutionized cellphones by turning them into hand-held computers. Resorting to evolutionary design changes would give rivals an opening.
The next iPhone should again propel Apple's stock and its sales. That may be the time for Apple shareholders to take their money off the table.
Write to Rolfe Winkler at rolfe.winkler@wsj.com
Write to Rolfe Winkler at rolfe.winkler@wsj.com
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