In this Apple story, it's not about whether you're a Mac or a PC. This time, it's all about the iPod Touch, the shy younger cousin of the iPhone that really hasn't had its moment in the spotlight - until now.
Susquehana Financial analyst Jeffrey Fidacaro wrote in a note to investors this week that he sees several near-term growth drivers for the company, including a rollout of the iPhone in key markets (read: China) and the development of "new and innovative mobile devices, including scaling up the iPod Touch platform."
Fidacaro is right on the money with that assessment. The iPhone is a revolutionary device - but contrary to what's widely believed, the power of the iPhone is not the phone itself. Voice? Who actually talks on a phone anymore? The power is in the apps and the platform that allows developers to turn the iPod Touch into anything from a flashlight to a pinball machine to a checkbook or a police scanner. This week, the University of Missouri's School of Journalism listed the iPod Touch or iPhone as a required item for incoming freshmen for lectures.
Also see: Amazon Kindle's $489 price tag makes iPod Touch a better buy
And that's just the beginning. In his note, Fidacaro writes:
We believe that one component of the iPhone ecosystem that differentiates Apple from its competitors is not only the thousands of third-party developers committed to creating innovative content on the App Store on top of the 35,000 applications currently available (more than double the 15,000 last quarter), but also Apple’s ability to provide new features and functionality via free software upgrades. For example, the upcoming iPhone OS 3.0 software update this summer is expected to provide more than 1,000 new developer APIs that will enable new functionality such as peer-to-peer connections, push notification, and in-app purchases.
Also see: Apple's future: It's in the Touch
Also this week, Kaufman Bros. analyst Shaw Wu issued a note detailing a meeting last week that included Wu, a group of investors, Apple CFO Peter Oppenheimer and Tom Boger, senior manager in the Mac division. The company didn't offer any the group any new information about key topics of interest, notably netbooks, China and Verizon. Still, Wu's note Monday was upbeat. He wrote:
... we walk away with higher conviction in our BUY thesis and believe shares can support a higher multiple. We believe Apple has defensible strategic and structural advantages with its vertically integrated model and could likely continue to outperform despite strong macroeconomic headwinds.
In terms of China, Wu writes that the company seems to be "particularly excited" about it but wouldn't offer details on timing. And as for netbooks, Apple told Wu's group that it's still not interested in the devices - though it quickly came back with a "never say never." (I still say that Apple's comeback to the netbook is something that's built on the iPod Touch platform.)
The company's momentum appears strong and neither analyst anticipates any disruption between now and the company's Worldwide Developers' Conference in June.
CEO Steve Jobs, who went on medical leave in early January, is expected to return to the helm at the end of the June, after the conference. In his note, Fidacaro also listed the concerns about Steve Jobs health and the lack of a clear succession plan as risk factors in his report and questioned whether Jobs would even return to the company at the end of his leave.
Still, Fidacaro expressed confidence in the senior leadership not only at the executive level but also in key areas, such as design, marketing and retail. In his note, he wrote:
Steve Jobs remains the key leader and innovator at Apple, which will challenge the breadth of skills and adeptness of his successor to emulate (which are some awfully big shoes to fill). If and when a transition in the CEO office takes place, we suspect investors will be challenged to demonstrate patience, but in our opinion, the unique culture and ecosystem that has been developed by Mr. Jobs during his tenure will survive and Apple will continue to create innovative products.
Because it's uncertain whether Jobs will return to the company, Fidacaro said Chief Operating Officer Tim Cook, who is running the day-to-day operations while Jobs is out, appears to be the most likely candidate to be that successor.