April 2, 2010 7:10 pm

Investors await iPad’s cliffhanger launch

At least 200,000 US residents will get their hands on Apple’s new iPad on Saturday, convinced that, without ever having held one, the mouseless computer is right for them.

Meanwhile, a much bigger group, made up of Apple’s investors, is already sure it will like the new device even more.

Spurred in part by iPad anticipation, shareholder enthusiasm has more than doubled Apple’s market capitalisation in the past year, driving it past Google and Walmart. At $214bn, Apple is worth more than every US company but ExxonMobile and Microsoft.

Apple is trading at 23 times its profit from the past 12 months, which does not include iPad sales – higher than most companies, certainly, but well below Google’s price-to-earnings ratio of 28.

All but six of the 32 analysts surveyed by Thomson/First Call rate Apple “buy” or “strong buy” and many have the stock as their top pick in technology, though they differ on how well the iPad will fare.

“We continue to believe the market underappreciates longer-term iPhone/iPad demand,” Morgan Stanley analyst Kathryn Huberty wrote to clients, predicting that the company could end up with a quarter of the smartphone market within four years.

The sort of marketing wizardry on full display in the hype surrounding the iPad launch is only part of the strategy that has spurred on Apple’s growth.

It has thrived by controlling the user experience far more than other technology companies, even as it moved from its computing core to complex industries such as of music and telecommunications. The iPad continues in that direction: Apple hopes people will agree with founder Steve Jobs and want to hold a 1.5-pound machine rather than park it on a table.

The iPad also fits Apple’s pattern of concentrating on a relatively small number of premium products with hefty profit margins. Apple has kept its own costs in check while encouraging outside programmers to invest in making applications that suit the iPhone and WiFi-only iPod touch.

Projecting that same formula onto the iPad could generate 2.4m units shipped in the machine’s first six months at an average selling price of $600, nearly half of that gross profit, said Credit Suisse analyst Bill Shope. At that rate, an extra $1.4bn in annual gross profit would add about 6 per cent to Apple’s expected performance this year.

Others, however, are more sceptical, citing the uncertain breadth of the target market and Apple’s approach to it.

“There’s a fundamental disconnect between who is the best customer and why it is designed the way it is,” said Forrester analyst Sarah Rotman Epps.

The most logical buyer is a consumer who wants to watch video, surf the web, and do some reading and e-mail from a place more comfortable than a desk.

But that person is not going to be the easiest to convert to Apple’s vision of a world where everything is wireless. There is no USB port, for example, and therefore no simple way to connect a digital camera and upload photos.

“The iPad is a little too futuristic for that customer”, Ms Epps said.

None of this means the crowds will not come at some point. But judging by the pre-announced video and book deals, and the first iPad apps to go on sale, that critical mass is unlikely to materialise in the first weekend.

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