Apple’s fall from grace

Apple was a company that could do no wrong. Phones that dropped every other call… Location tracking scandals… Antennagate… A CEO who constantly parked his $130,000 sports car diagonally in handicapped spaces… Apple didn’t have to roll with the punches, the company would simply laugh at the punches or toss the press and public a few crumbs if need be. A week or even a day later, all was forgiven and Apple would continue on its path, making terrific products and mopping up industry profits while whistling to itself contently.

On Tuesday when Apple unveiled its brand new iPhone 4S, the fifth iteration of Apple’s revolutionary smartphone, things felt different. The company’s iconic co-founder was nowhere to be found, the venue was smaller, the applause seemed reticent and the product unveiled was not greeted with arms open quite as widely as they had been in the past. People seemed, in a way, bored.

Reactions from those who spent time with the device at Apple’s press conference were positive, of course, but it didn’t feel the same. What was different this time around? Members of the press and many consumers following the event felt that we were looking at a possible miss from the great Apple. Beyond nitpicking and whining about insignificant specs or other irrelevancies, many level-headed writers and pundits genuinely seemed to think that the iPhone 4S might be the beginning of the end.

Yes, investors were seemingly disappointed by Tuesday’s announcements, but this is hardly uncommon. Buy the rumor, sell the news. That Apple only closed down half a percent on Tuesday exhibits confidence in the company’s management, strategy and portfolio more than it does disappointment in the iPhone 4S.

And what about analysts? The finance crowd adores Apple, so they must have been jumping up and down in their penthouses, right?

“Apple no longer has a leading edge, its cloud service is even behind Android; it can only sell on brand loyalty now,” Gartner analyst C.K. Lu told Reuters on Wednesday. “Users may wait to buy the next iPhone; if they can’t wait, they may shift to brands with more advanced specs.”

“We had expected the company to announce two new devices, an iPhone 5 and a 4-plus,” JP Morgan analyst Mark Moskowitz wrote in a note to investors. “We are disappointed that Apple did not introduce a thinner form factor, but we see the feature set improvements in the iPhone 4S and the broader pricing strategy as positives.”

Yes, we’re seeing some negative takes on the news, but have we seen any big names revise their estimates downward significantly? Of course not. Even analysts who were hugely bullish on a redesigned iPhone 5 are still confident that Apple’s reign will continue.

We’ve seen no real negative revisions on revenue projections either. In fact, Apple’s free iPhone 3GS and its $99 iPhone 4 have had the opposite effect in some cases. RBC Capital Markets analyst Mike Abramsky, for example, wrote in a note Wednesday morning that Apple’s $0 3GS “may double Apple’s global addressable market, and may help address rising mid-market Android competition.”

And some analysts such as Wedge Partners’ Brian Blair had already modeled for this scenario. Blair, as some might recall, hit the nail on the head late last month. “We expect the focus of the new iPhone will be iOS 5, a speedier A5 processor and a higher resolution 8 MP camera with a small possibility of a larger 4 inch screen,” the analyst wrote in a research note on September 21st. Blair saw Apple selling 91 million iPhones this calendar year, and that staggering sum remains unchanged.

Some analysts even think the iPhone 4S and new cheaper iPhones 4 and 3GS will drive sales that exceed already-lofty projections. “While the moderate changes to the iPhone 4S might not drive the type of upgrade cycle that was seen by the iPhone 4, the lower prices of legacy models and broader availability on more carriers are still likely to deliver calendar Q4 phones sales in excess of our 21.5 million estimate,” BTIG analyst Walter Piecyk wrote on Wednesday.

But an interesting takeaway from yesterday’s announcement may simply be that Apple has fallen from grace in some respects. Apple is fallible, even if the 4S ends up being a success. A company that could do no wrong in recent history just, well, did wrong in the eyes of pundits who had previously viewed every Apple product announcement as a gift from the heavens.

It should have been bigger. It should have been better. It should have been more Appley.

There were skeptics after Apple unveiled the iPhone in 2007, and after the iPhones 3G, 3GS and 4 as well. But yesterday’s skeptics took a different tone. They didn’t wonder if Apple could succeed or nervously whine about missing features, they collectively shouted that Apple had lost its mojo.

But then there’s the imminent reality check. And from where I’m sitting, the iPhone 4S is oozing with mojo.

Apple’s iPhone 4 provides the most silky smooth user experience on the planet with the firm’s A4 processor running the show. The more powerful dual-core A5 chipset from Apple’s iPad 2 should somehow improve on that already-phenomenal experience, and it will empower Apple’s new golden child, Siri.

It should be noted that I was hugely skeptical of Siri’s significance ahead of Apple’s event on Tuesday, but I’m now singing a different tune. I think the concept and technology behind Apple’s new personal assistant service are phenomenal, and while Siri might not be a huge draw for consumers in the near term, the long-term implications are tremendous. Apple just made smartphones much, much smarter.

On the outside, there is no question that the iPhone 4S is the same device as its predecessor. It might have a revised antenna system, but the similarities are so great that Apple had to include the Newsstand icon in marketing images depicting the phone’s home screen as no distinction would be made otherwise. But is that such a bad thing? The iPhone 4 is still an engineering feat, and I’m not sure a more attractive smartphone exists to this day.

Naysayers said Apple couldn’t cut it selling just one or two smartphone models, and now Apple owns two-thirds of global smartphone industry profits. Led by Apple’s gray-haired iPhone 4, which launched in June 2010, Apple sold more smartphones last quarter than any other vendor on the planet.

The numbers will do the talking over the next few quarters, and I expect Apple’s iPhone sales to continue on the same skyward path right up to next year’s iPhone 5 launch and beyond. As of October 12th, Apple will sell three different smartphone models that range in price from free to $399. The company will address postpaid smartphone buyers from top to bottom, and rumors suggest we may even see an attack on the prepaid market in the near future. No company stays on top forever, of course, but Apple’s new smartphone lineup is hardly that of a company that has begun its descent.

Apple may have fallen from grace in a way, but until competitors can even come close to approaching the allure surrounding Apple devices and the user experiences they afford, don’t expect the company’s grip on the industry to loosen at all.

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