Wednesday, June 02, 2010

Apple's Two Biggest Risks

By Eric Jackson, Senior Contributor

06/02/10 - 06:00 AM EDT

Stock quotes in this article: AAPL , MSFT , HPQ , ADB , GOOG

I have been a big proponent of Apple(AAPL) for the last several months. There is a lot of good news to be excited about.

When the iPad was announced at the start of the year, most of the first-day reaction to the device centered on its name. Many people cracked jokes about it. Steve Jobs shrugged his shoulders and said the jokes would stop in a matter of days, as the new name of the device entered part of our regular device vocabulary. Guess what? He was right and the jokesters were wrong.

Pre-launch, I expressed here that what was so important about iPad for Apple stockholders was that Apple was creating a completely new device that it could sell to every current owner of an iPod, iPhone or iMac, as well as the rest of the population.

For a company with nearly a quarter-of-a-trillion-dollar market capitalization at the time, you need to find big opportunities to drive increased revenue. Apple did that with iPad. They created a whole new product category which people didn't realize they needed until they saw it, held it, and started playing with it.

Skeptics thought iPad would be a Newton. They saw what Microsoft(MSFT) and Hewlett-Packard(HPQ)had done to date with their tablets and thought Apple would achieve only marginal improvements over that. They were wrong.

I remember many Apple analysts projecting pre-US launch that Apple would sell 1 million iPads in 2010. We just found out that Apple has sold 2 million in two months.

So, there's a lot to be excited about if you are an Apple long holder. That's fine. But I want to express the two areas which worry me as a long-holder of the stock. These are the two concerns which keep me awake at night and they are the areas in which I hope the company is spending enough time on to ensure they are adequately addressed.

My two worries are Steve Jobs' health and balancing the benefits of being open vs. the optimal experience and product lock in from a walled garden.


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