Analyst: Cost, iTunes Set iPhone Apart

by , 1:20 PM EDT, June 27th, 2007

Apple's iPhone is schedule to hit store shelves on June 29, and like the iPod, American Technology Research analyst feels that iTunes will play a key roll in its success. AT&T's recently announced special iPhone service packages will also likely be attractive to prospective buyers.

"We believe iPhone+iTunes will prove to be a key competitive differentiator and believe the offsite activation will ease the crush that is expected at AT&T and Apple stores," he said. "With over 500 million downloads, iTunes is one of the world's most widely used applications, which we believe will help make iPhone familiar and easy to use."

He also expects that iPhone's user activation through iTunes will help to "ease the crush" Apple and AT&T retail stores are likely to experience when the device is launched this Friday.

One iPhone feature expected early on as a possible deterrent to buyers was the cost of the service contract - a feature that now appears to be a selling point thanks to lower than anticipated pricing.

Mr. Wu commented "We find these price points better than feared and believe the $59.99 and $79.99 plans will be particularly attractive for mainstream users. Essentially, the unlimited data service works out to only $20 of incremental cost per month, significantly below the $45 to $50 offered by other carriers. In addition, our sources indicate that AT&T has spent $50 million recently on network upgrades in preparing for iPhone."

While there have been concerns over the virtual keyboard the iPhone offers as opposed to the small physical keyboards other smartphones offer, Mr. Wu feels that is not going to be an issue. He expects that users will spend more time using the iPhone's navigation features, like scrolling through menus, than typing on the virtual keyboard.

Mr. Wu added "We continue to view Apple as among the strongest fundamental stories with its vertically and horizontally integrated end-to-end portfolio (Mac, iPod, iTunes, iPhone, iTunes, and Apple TV) and see several catalysts in the quarters ahead."

Mr. Wu is maintaining his "Buy" rating and US$145 target price for Apple's stock. Apple is currently trading at $120.69, up $1.04 (0.87%).

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