Apple’s iPhone5 Intro: 5 Things That May Go Wrong

on September 11 2012 1:01 PM
Apple Confirms  Sept. 12 iPhone 5 Event
Apple has sent out invitations to an event scheduled for Sept. 12, presumably about the new iPhone. Apple

Apple (Nasdaq: AAPL), the world's most valuable technology company, has invited the world to see what's presumed to be the long-awaited iPhone 5 debut in San Francisco on Wednesday. Shares of Apple, which had set a record high of $683.29 last Friday have fallen back, trading midday Tuesday around $663.59, up 85 cents.

No doubt the iPhone 5 (or whatever it's officially dubbed) will be a huge hit with devotees, current customers and prospective new ones in China, where the device is scheduled to be sold over several mobile networks, Analysts have suggested as many as 10 million might be sold in as little as 15 days.

Still, there are potential flies in the ointment for the Cupertino, Calif., company. Here are five potential potholes Apple could encounter:

Falls from No. 1. With a market capitalization now of about $622 billion, Apple became the world's most valuable enterprise, far outpacing No. 2, ExxonMobil Corp. (NYSE: XOM), the biggest U.S. energy company, valued now around $415 billion. While there's little reason to see any imminent collapse in Apple's value, it will happen over time.

Several other technology giants, all thriving, have been No. 1 before. Their names are Microsoft (Nasdaq: MSFT), the world's biggest software company, and Cisco Systems Inc. (Nasdaq: CSCO).

Competition from Android and Microsoft. Apple has sold millions of iPhones in various iterations since 2007 and carved a unique niche. But it confines its market to its own iOS, with the result that Android from Google (Nasdaq: GOOG), the No. 1 search engine, now holds a much bigger share. Next quarter, Microsoft will ship Windows 8, which has already been loaded into the Lumia phones from Finland's Nokia Oyj (NYSE: NOK) and may get into more.

iOS has about 18 percent of the market now, estimates Gartner, about the same as last year, but Android is surging: now 64 percent compared with only 43 percent a year ago.

Moreover, Apple's bitter rival, Samsung Electronics (Seoul: 005930), has a huge hit with its Galaxy S3, and it's priced far below the iPhone. Indeed, so are just about all the others. That explains the current patent warfare, as well as the reason that last October, Apple kept the old iPhone 4 and 3 units around, but at lower prices, to offer what marketers call "brand extensions."

Functions and operations. Unlikely, given the rigorous testing and requirements demanded by CEO Tim Cook and his subordinates, but it could be the new Chinese-made phones from factories operated by Taiwan's Hon Hai Precision Industries (Taipei: 2317) have a glitch or defects. Hon Hai has acknowledged enormous pressure, overtime and even recruitment of students to its lines.

Apple has hinted at improvements in Siri, its voice-activated personal assistant, camera, versatility and more. This is a tall order for any consumer electronics company.

New management. The iPhone 4S was introduced the day before Apple Chairman Steve Jobs died. The current management team, including Cook and design chief Eddy Cue, was largely handpicked, so it most likely fits the Jobs mandate. But they're not Jobs, the mad genius who co-founded the company and put it onto its present course.

Analysts remain highly bullish. Peter Misek of Jefferies reiterated a $900 target price for Apple, predicting overall sales of iPhone models this year to reach 121 million and 201.6 million next year.

But can the post-Jobs management deliver? That's the $630 billion question.

Telephone companies. Little mentioned is the reception Apple's carriers will accord the new product. Jobs hammered out the first arrangement with AT&T Inc. (NYSE: T), the No. 1 telecommunications carrier, then added Verizon Wireless, a unit of Verizon Communications (NYSE: VZ) and Sprint-Nextel Corp. (NYSE: S) for U.S. coverage.

Apple then signed up more carriers worldwide, especially in China. But the carriers have to pay small fortunes to Apple. Sprint even had to raise billions selling bonds last year to start carrying the product.

At some point, they might recoil and stop, or demand customers pay more to Apple directly. As well, they may also significantly raise prices for calls and data transmission, especially for video, over their networks, for which they already face high upgrade bills. Meanwhile, the new iPhone could prompt a shift to their new long-term evolution (LTE) networks and keep both sides happy.

Still, in Cupertino, executives dealing with Apple's mobile carriers will need to be top diplomats.