Tech Check

A Tale of Two Smart Phone Makers


A very interesting report from RBC's wireless analyst this morning Mike Abramsky, and the power of potential at Apple and Palm.

First Apple where the skies indeed seem the limit for opportunity here. Abramsky and team met with top execs at Apple and came away smitten. And for good reason: it seems Wall Street is coming around to the fundamentals that many of us have been preaching. In all fairness, Abramsky had been an Apple naysayer but came around, and big. And his optimism is only reiterated this morning.

The meeting was with Eddy Cue, VP iTunes and Internet Services; David Moody, VP of Worldwide Mac Marketing; and Peter Oppenheimer, CFO. And the takeaways were as simple as they were captivating: "The discussions reaffirmed our Outperform thesis:? iPhone Channel Leverage Remains High. Despite intensifying competition (Android, RIM, etc.) Apple continues to enjoy strong global carrier interest in iPhone..."

He adds that iPhone's secret weapons include: "Vertical integration (hardware/software) and iTunes ecosystem remain a significant competitive advantage over contenders, with evolving innovations pending, applications leadership and content ecosystem."

And most telling, while we keep focusing on nascent competition from the likes of the Palm Pre and all those new Android handsets, Abramsky rightfully boils that down to market fragmentation.

"Multiple configurations" is viewed as a disadvantage to application developers, vs. Apple's single-platform model," he writes. Apple's App Store continues to be the key differentiator with 90,000 titles versus the Android's 12,000.

On the operating system side, Abramsky says,  "Windows 7? Bring It." The upgrade cycle is another opportunity to get consumers and enterprise customers in a shopping mode again, and if they're gonna crack open the checkbook, why not spend the cash on a Mac? Microsoft CEO Steve Ballmer recently told me that Apple only controls a tiny percentage of the market, and he practically laughed it off. To me, such a small market share today represents huge, untapped opportunity, and while Microsoft tries dutifully to hold its market with exceptionally limited, upside potential, Apple's opportunities by comparison are almost endless.

But in a separate report released simultaneously to Apple's, Abramsky focuses on Palm and tries to sing the same optimistic tune. True, Palm has next to no market share in smart phones, and its opportunities should also seem endless. Trouble for Palm is that it's still largely a one-trick pony, though Pixi might have some potential. But unlike Apple's long track record of execution, and a deep reservoir of cash, and buzz, and momentum, Palm starts, sputters, stops, sputters, restarts, and tries to move forward.

Abramsky warns,  ??"Don't underestimate Palm????," after meeting with Doug Jeffries, CFO; Jeff Devine, SVP Operations; Phil McClendon, Pixi Product Manager; Mitch Allen, Software CTO; and Dave Vadasz, VP Corporate Development.

"Palm continues to aggressively innovate (beyond investor visibility, in our view), has a stronger than appreciated product pipeline, and is moving to advance WebOS's competitive advantages," he says. Convincing Wall Street is one thing, but getting shoppers to buy the Pre and Pixi over the Blackberry and iPhone is certainly another.

Abramsky and I agree on one thing: the smart phone world is the wild west of tech right now. It's not a question of success for the key competitors; it's a question of degrees of success. And while Palm might be satisfied with market place scraps, the big dogs are chewing through the bones. That's Apple, and Research in Motion , and maybe even Motorola in the Android space, though Google might be the better bet here on that front. Palm has opportunity and potential, but it pales in comparison to Apple's.

And that's because Apple has something none of the other smart phone makers do, namely everything else: Macs, iPods, an OS for computers and phones, a robust retailing strategy, iTunes, the App Store, the intangible of market mojo, and the executive talent to pull it off. Watching Apple at this stage is like watching "Sunday Night Football." It's a total blow-out late in the fourth quarter and yet the commentators try to come up with scoring possibilities and formulas to make the game a little more interesting, to hold the viewer, even though everybody really knows the game is over and who won.

In tech, for investors, it's Apple versus everybody else. But yeah, we'll still try to make it interesting.

  • Slideshow: Evolution of Wireless Communication

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