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5/18/2010
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Ed Hansberry
Ed Hansberry
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iPhone Loss 'Huge' -- Thanks, Gizmodo

Apple has been very aggressive with its prosecution of its case against Gizmodo since the tech site outed the next generation iPhone on its site a few weeks ago. New court documents reveal that according to Apple, it is suffering huge losses in sales as people sit on the sidelines waiting for the next round of hardware.

Apple has been very aggressive with its prosecution of its case against Gizmodo since the tech site outed the next generation iPhone on its site a few weeks ago. New court documents reveal that according to Apple, it is suffering huge losses in sales as people sit on the sidelines waiting for the next round of hardware.Apple wasn't content with getting the prototype back. Its attorneys urged local police to press for criminal charges in the case. Under California law, finders are not keepers. If you find something you have the legal obligation to return it to its owner. The finder's roommate made such an effort by calling Apple's support line. They claimed not to know what he was talking about so the finder sold it to Gizmodo for $5,000. The Wall Street Journal has an excellent recap of the events thus far.

There are legal questions to be answered here. Was the attempt to return it sufficient? Did Gizmodo engage in criminal activity by buying "stolen property?" I am sure we'll have answers to those questions in due time as I now expect this case to go to court.

According to FierceWireless, Apple's outside council O'Melveney and Meyers representative George Riley was asked what kind of loss Apple would suffer as consumers ready to buy a device held off until the next generation was released. He estimated they would be "huge." I don't know what that means. One million dollars, ten million dollars? Well, you know, huge.

The effect is well known in the tech industry. Companies go to great lengths to keep future plans secret so as not to kill off current products. Phone are especially susceptible to this. Unlike a PC, phone hardware cannot be upgraded. Unlike an operating system, you cannot just always upgrade to latest greatest when it ships. Even when you can upgrade, sometimes you get less than 100% of the new features.

I would argue though the loss will be less than Apple currently claims. The real risk is the current 3.0 devices will become stagnant inventory and have to be sold at discount prices earlier than expected. Anyone holding off now will just buy the 4.0 device, thus inflating their sales, and those will have much fatter margins than even a 3.0 device had the day before this story broke.

No one knows the true cost. Apple though will inflate the loss as much as possible to bolster their position in two courts, the court of law and court of public opinion.

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