Analyst: iPhone Will Succeed Despite Drawbacks

| Apple Stock Watch

Appleis iPhone will hit store shelves on June 29, and American Technology Research analyst Shaw Wu expects it will be a success - despite perceived shortcoming in the combination iPod and smartphone. The iPhoneis virtual keyboard, non-removable battery, and price point have all been seen as product negatives.

The iPhone will sport a virtual keyboard instead of a physical keyboard like the Blackberry and Palm Treo. Although the iPhone keyboard will require some retraining, it wonit be a problem for most users.

"We believe Appleis iradicali design will likely require a learning curve for most users," Mr. Wu said. "However, we are not overly concerned as we believe users will likely spend the majority of their time on navigation-type tasks, i.e. scrolling through menus, surfing the web, etc."

Unlike other smartphones, the iPhone does not include a user-replaceable battery. Despite its recently announced eight hour talk time, the iPhone battery could be an issue for some users that will want to swap batteries when drained, or replace them when worn out. Mr. Wu would like to see Apple offer user-replaceable batteries on future models, and also sees that as lucrative after-market opportunity for Apple licensing partners.

While there have been complaints about the iPhone price point, Mr. Wu doesnit see that as a major issue for now. He commented "Because of strong demand, the high price points will likely not be an issue for the first few million units from the early adopter market. However, longer term, we believe AAPL needs to round out its iPhone product line at lower price points (similar to iPod) if it expects to replicate the success of its iPod with sales of 100 million units."

Mr. Wu added that while the iPhone will offer support for Microsoftis Exchange email server, it will not be as robust as the offerings for the Blackberry or Palm Treo. For enterprise-level users, this may be an issue, but not for the majority of consumers.

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

Mr. Wu is maintaining his "Buy" rating and US$145 target price for Apple stock. Apple is currently trading at $123.63, up 3.13 (2.60%).

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