iPhone: Apple's Make-or-Break Bet

It's not just the sky-high expectations that make the iPhone launch such a tremendous risk for Apple. Even without them, the company might have a tough time as a new entrant into a market that consists of giant, entrenched competitors who together sell 1 billion phones a year. That's much different than the MP3 player industry, and when Apple introduced the iPod.

Even for Apple (Nasdaq: AAPL) , which has thrived on taking risks, the iPhone represents an audacious bet -- possibly its biggest ever.

When the new smartphone hits store shelves June 29, the company will have a lot more on the line than the success or failure of one product.

With a hit, Apple will revolutionize the mobile phone industry. It will cement its reputation for creating gadgets whose chic designs and ease of use are so compelling that consumers will pay more for them. Oh, and by the way, it will create a third, profitable and fast-growing business to add to the Mac and the iPod.

A miss, however, could be catastrophic. Apple's ambition to become one of the few companies in the world to bridge the technology and entertainment worlds would be dealt a huge setback. The 30 percent gain Apple's shares have posted in the last three months on iPhone hype would probably evaporate. Its aura of invincibility would be punctured.


Deafening Hype

"As much as any bet they've ever made, this is a 'bet the company' risk," said Cody Willard, a New York-based hedge fund manager who has owned Apple's stock for about five years. "If the iPhone is the next Newton," he added, referring to a handheld device the company released in the early 1990s that famously failed, "it would have far-reaching ramifications for the company's other product lines ... and in its dealings with Hollywood."

Even a bona fide success for the iPhone could be seen as a failure, given the extraordinary expectations for what is, after all, Apple's first foray into the brutally competitive cell-phone industry.

"It's a little frightening," said Jay Somaney, a hedge fund manager with TSG Capital in Plano, Texas, who owns Apple's stock but plans to sell it before the iPhone's launch. "There's no way they can meet the hype."

In keeping with Apple's traditional secrecy, company representatives would not talk about the iPhone.

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