Tech Check

Apple's iPhone Doesn't Jump Through 'Hoopes'

Apple iPhone

You gotta hand it to ThinkEquity Partners' Apple analyst Jonathan Hoopes who broke from the Street pack and, (the horror!), downgraded Apple Inc. today. Downgraded? Apple? That's like oil and water! Paris and freedom!

The last time Apple   was downgraded? Citigroup, on April 26th, when Apple was trading at around $90 a share. Those poor Citigroup clients missed another 33% to the upside since that downgrade was published. So, will Hoopes' dowgrade lead to the same kind of result? Or is he ahead of an Apple downturn?

Hoopes does bring up some very good points in his note, helping Apple shares take a 4% breather today as investors digest comments from some of the naysayers. It's not just Hoopes. Pacific Crest Securities' Andy Hargreaves, who maintains his "outperform" on Apple shares, suggests today that Apple's good news is already baked into shares and that will likely limit upside, at least in the near-term.

"I love the company," Hoopes tells me this morning. "I just have a hard time loving the stock up here. The risk/ reward of owning Apple shares two weeks before the launch? Well, this is something you probably don't want to own going into the launch because they have to have a perfect launch! Unless they execute flawlessly, I mean, they'll execute well, but the chances of them executing flawlessly? You start putting more risk into this. I don't like the risk/reward at these levels."

The knocks come as Apple continues to celebrate its Worldwide Developers Conference in San Francisco; and just two weeks from this Friday, the iPhone actually reaches store shelves. The hype machine around Apple has been in overdrive these past several months. Really the past year! By how much? During last year's WWDC, Apple shares were trading in the low 50's. Today, they're near $120.

And that's leading Hoopes to be concerned about a stock getting way ahead of itself. He says in his report that "The stock is overbought on the hype and hoopla of the yet-to-be-launched iPhone. While we may be wrong, we believe the near-term 'easy money' has already been made."

Hype is a funny word when you're talking about Apple. I made the mistake of using the word "hype" when I sat down with Steve Jobs last October when he was unveiling the latest crop of new iPods. I told him that the media was used to the big hype we typically hear from Apple.

"The 'big hype' from Apple Computer," Jobs asked me, incredulous. "Ohhhh, did I say that out loud?" I asked in return, laughing. "I thought 'hype' was something you say, and then don't deliver," Jobs corrected me. "We like to deliver what we say."

That may be the key in all this. I can't remember a time when Apple didn't under-sell and over-deliver. And that's what makes the iPhone unique to so many other Apple products. Apple is selling iPhone, and hard. Jobs himself is using words like "revolutionary," and game-changing. This is a case where Apple is fanning the flames in a big way. The company even diverted manpower and money from the development of its next-generation operating system Leopard, delaying its release to October, to make sure iPhone comes out on time.

The pressure is on.

Which leads me to Apple stock, and Hoopes' comments, which in many respects are pretty obvious. Apple shares are up better than 40% this year with many analysts saying there's still room to grow. Will Apple see the same level of growth over the next year as it did the last? With several analysts well over $150 a share, it seems unlikely.

But those targets could go higher if the Street starts to get an indication that iPhone will meet some amazingly lofty sales targets. Piper Jaffray anticipates 45 million iPhones will sell in 2009, only its second full year on the market. Caris & Co. boosted iPhone sales estimates Monday by 4 million units, now expecting 22 million sold by the end of next year. Caris raised 2009 estimates by a whopping 40%, from 27 million units to 37.5 million units instead. At the same time Caris and JMP Securities both raised their 52-week targets on Apple.

Some lofty goals, no question. But I wouldn't count out Apple's innovation, its ability to surprise, and its penchant for beating expectations, both financially and technologically. Heaven help the company and its investors if it can't do at least most of that this time around.

Questions?  Comments?