All Things Digital

For Apple, these are the best of times and the worst of times. The company is on a tear like never before. It’s winning market share from Microsoft, enough to persuade the software giant to embark on a costly ad campaign that’s being described as a belated response to Apple’s Vista-baiting Get-a-Mac ads. Apple stock has outpaced Google’s, and in the space of a year the iPhone has turned the telecommunications industry in a knot trying to find a way to respond. But there have also been dramatic stumbles.

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If you haven’t read, ESPN has said that they will be aggressively bidding for the retransmission rights for the 2016 Olympics. Notice that I didn’t say TV rights. The battle for the Olympics rights will be in spreadsheet projections done by ESPN, NBC and probably DirecTV that will take into account what revenues can be generated by TV advertising (traditional and interactive), cable/satellite subscription revenues, an ever-increasing market size for mobile video and advertising, and of course audio/video and text advertising of all types.

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Piper Jaffray analyst Gene Munster writes this morning that Apple’s (AAPL) expansion today of the iPhone’s availability to 21 additional countries, nearly doubling the total, will lead to a 78 percent increase in addressable buyers, and that the resultant rise in iPhone unit sales is not being taken account of in Street estimates for Apple.

“Our iPhone estimate of 4.1 million units in the Sept. [fiscal third] quarter is likely conservative,” writes Munster. (Munster actually raised his estimate for this quarter to 4.47 million units last week. Not sure why he uses the old estimate in today’s note.)

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If anyone knows how best to survive a corporate near-death experience, it is Jon Rubinstein. In 1997 the former Hewlett-Packard engineer was asked by Apple’s founder, Steven P. Jobs, to lead the hardware engineering division at the company, which was then struggling. Apple was wallowing in financial losses and the Mac’s appeal was waning. Mr. Rubinstein agreed, and over the next nine years he and his team of engineers breathed new life into the company by helping develop the iMac and the iPod. Those experiences should serve him well as he seeks to resuscitate Palm.

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Strange but true: These are either the best of times or the worst of times for Apple’s reputation–and it all depends on which developments you choose to pay attention to.

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Pacific Crest analyst Andy Hargreaves released a note this morning with a bunch of data points showing the rising importance of Apple’s (AAPL) iPhone in Internet usage. And he implies that the current value of the shares could be closer to $184 than the current $176.15 at which the stock trades.

Hargreaves writes that based on data from privately held Internet measurement firm Net Applications, of Viejo, Calif., the Safari Web browser shipped on the iPhone accounts for .3 percent of all world-wide Web surfing in August so far, double its share in June, prior to the introduction of the iPhone 3G. “iPhone’s rapid share gains in Internet usage suggest potential upside to current estimates,” writes Hargreaves, “and are a strong indicator of what we believe are lasting competitive advantages.” He goes on: “As Web-based software and services become more ingrained in our every-day working and personal lives, Apple’s emerging advantage in the mobile Internet will, in our view, become increasingly valuable.”

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Pandora is one of the nation’s most popular Web radio services, with about one million listeners daily. Its Music Genome Project allows customers to create stations tailored to their own tastes. It is one of the ten most popular applications for Apple’s iPhone and attracts 40,000 new customers a day.

Yet the burgeoning company may be on the verge of collapse, according to its founder, and so may be others like it.

“We’re approaching a pull-the-plug kind of decision,” said Tim Westergren, who founded Pandora. “This is like a last stand for webcasting.”

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U.S. cable operator Cablevision’s (CVC) announcement this morning that it will pay a quarterly dividend of 10 cents a share does not preclude the company from doing a large share buyback, says Collins Stewart analyst Thomas Eagan in a note to clients this morning.

As [fellow Tech Trader Daily writer] Eric Savitz noted yesterday, the Dolan family that controls Cablevision has taken what some consider a more “shareholder-friendly” stance of late, perhaps because activist investor Harbinger has taken a 5 percent stake in the company.

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Complaints over dropped calls and choppy Web connections on Apple’s iPhone 3G have sparked a wave of debate in the blogosphere over the root cause of the problems. Two well-placed sources tell BusinessWeek.com the glitches are related to a chip inside Apple’s music-playing cell phone. The sources add that Apple (AAPL) plans to remedy the problems through a software upgrade rather than through a more disruptive step, such as a product recall.

The news reinforces analysis by Richard Windsor of Nomura Securities, who said in an Aug. 12 report that the problem involves a communications chip made by Munich-based Infineon Technologies (IFX). Faulty software on the chip causes problems when the iPhone needs to switch from wireless networks that allow for faster Web downloads to slower ones, the people say.

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The huge success of the iPod and the incredible media hoopla surrounding the iPhone have transformed the way the world looks at Apple. … The public perception of Apple is that it’s a technology juggernaut with immense power at its disposal as it steamrolls over everyone else in the technology industry while creating one industry-busting product after another. There’s just one problem with that image: It’s not true. In the past year, we’ve seen numerous examples of how Apple’s reach can dramatically exceed its grasp.

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Best Buy (BBY) shares are on the rise this morning on news that the company’s Best Buy Mobile stores will carry the Apple (AAPL) iPhone starting Sept. 7.

Pricing will be the same as it is through Apple and AT&T (T) stores: $199 for the 8GB model and $299 for 16GB, with a two-year AT&T service contract. Best Buy stores already sell iPods and Macs.

Meanwhile, Radio Shack (RSH) shares are sliding today. The retail chain already sells AT&T wireless service, but for now at least, isn’t going to be selling iPhones. Also hurting Radio Shack: news that the company has sold $325 million of 2.5 percent convertible senior notes due 2013.

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It seems a safe bet that most of the money made by iPhone application developers will come in the form of advertising. That is the overwhelming lesson from the PC-based internet. So if Steve Jobs is right in saying that the marketplace for paid-for iPhone applications will eventually reach $1bn, how much bigger might the advertising market be?

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Such is the frenzy for information about potential new products from Apple (AAPL) that the blogosphere has begun to lose track of the rumors.

On Macrumors.com, a post this morning makes reference to a report purportedly put out today by Piper Jaffray analyst Michael Olson. The report, which supposedly details expectations of upgrades to Apple’s laptops and iPods that may materialize in September, sounds suspiciously like a report put out on Aug. 6 by Piper Jaffray analyst Gene Munster.

In fact, they are the same report! There were no new reports from either Munster or Olson today, as a quick phone call to Piper Jaffray’s media relations department revealed. Olson and Munster work together, sharing coverage of Apple, and the one report they filed on Aug. 6 is being confused as two separate reports a week apart.

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As sales of Apple 3G iPhones continue to grow, there are also increasing reports of trouble with 3G reception on the devices.

Certainly, demand is robust. Lehman’s Ben Reitzes today writes in a research note that “checks indicate” Apple (AAPL) iPhone demand in the fiscal fourth quarter ending September could top his current estimate of 3.8 million units. And he adds that this “bodes well for cash flow,” and for “an enhanced halo effect for Macs.”

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State legislators look at Apple’s (AAPL) iTunes and other digital download services stealing away business from offline retailers and you know what they see? A piggybank.

News.com reports today that at least nine states this year have considered enacting “download taxes” on digital goods–and five of those states have adopted them, including Nebraska, Tennessee, Indiana and Utah. Similar laws are already on the books in Alabama, Arizona, Colorado, Hawaii, Idaho, Indiana, Kentucky, Louisiana, Maine, New Jersey, New Mexico, South Dakota, Texas, Utah, and Washington.

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