Is Verizon the real iPad winner?

Investors looking for a way to play the new iPad should look beyond Apple to the two broadband service providers supporting iPad functionality.

By The Fiscal Times Mar 12, 2012 4:46PM
Credit: © Tony Avelar/Bloomberg via Getty Images
Caption: Apple Unveils Updated iPadBy Suzanne McGee, The Fiscal Times

Another season, another Apple product debut.The Fiscal Times

This spring's new Apple gizmo -- almost certain to generate still more cash for a company already sitting on nearly $100 billion -- is the next version of the iPad. The device will start shipping Friday, and Apple (AAPL) devotees will doubtless begin lining up at stores and camping out on sidewalks to be among the first to get their mitts on the new tablet.

While the announcement was all the buzz among the technoscenti, it didn't do a great deal for Apple's stock price. Some traders said that the expectations associated with the new product were already factored into the share price, with one suggesting that investors weren't going to reward Apple for simply staying ahead of the game. "If they'd announced a product that was a game-changer, that would be different," he said.

The new gizmo plays catch-up with smartphones, including Apple's own iPhone, by offering 4G broadband access. It leaps ahead by offering what some geeks are describing as the ultimate screen, one that will make watching movies on your television or laptop feel like squinting at an old black-and-white television with rabbit ears on top. But the iPad again fails to support Adobe Flash, meaning that users will trip over an ever-increasing amount of content that they simply can’t access. That, together with the inability to expand memory by adding some kind of SD slot, will likely remain the biggest gripes.

The newest addition to the iPad family aims at two groups of people who won't be swayed by these considerations: owners of first-generation iPads -- those older, clunkier, heavier tablets with fewer bells and whistles -- as well as those who still haven't made the leap to the world of tablets. One of these is Atlanta pediatric physician Darryl Morris, who hit the "buy" button on and eagerly awaits delivery of his first iPad Friday.

The higher-resolution screen and the 4G capability were the tipping point, he says, but the real reason is that iPads have become both ubiquitous and indispensable in the hospital where he works, and it's particularly helpful to be able to access hospital records on a mobile device. Best of all, the higher-resolution screen of the new iPad will help him view medical images, from X-rays and MRIs to anatomical drawings. When something pops up that's unusual, Morris often uses a whiteboard in a patient's room to explain to parents what's afoot.  "It would be so much nicer to be able to pull up a detailed image on a tablet instead," he says.

Are there enough physicians like Morris -- and other iPad holdouts -- to reinforce Apple's dominance in the tablet market? Probably. As tablets become more common in workplace environments, it's becoming odd not to have one. For those looking for simple entertainment, the Kindle Fire may well suffice, but the iPad's capabilities stretch further, despite its limitations.

That said, while sales may be robust, they may not transform Apple's already-impressive growth trajectory. The newest generation of iPads starts at $499, about $300 more than the Kindle Fire. But without a new innovative feature to offer, the device may simply prod those already interested in buying the current iPad to shift to the newest offering instead. It's unlikely to prompt a mass upgrade on the part of those already owning the second-generation iPad.

At this point, it might make sense for investors looking for a way to play the new iPad to look beyond Apple to the two broadband service providers who support that iPad functionality. If one of the big pluses of the newest iPad is that 4G capability, that suggests that a greater proportion of those investing in it will opt for the more costly versions that enable 4G Internet access -- and that require a service contract with either AT&T (T) or Verizon (VZ). Of the two, the odds heavily favor Verizon.

After the collapse of AT&T's deal with T-Mobile last year, questions have swirled around the AT&T's ability to build or acquire all the spectrum it needs to meet that demand. Conversely, reports say that the new iPad will support a variant of wireless broadband known as LTE. At present, Verizon has the biggest LTE network nationwide; it also has been snapping up spectrum, announcing a $3.9 billion deal to acquire wireless access from a bunch of cable companies. The company may not be cheap -- it's trading at 45 times trailing earnings -- but it offers a hefty dividend of 5.15%, something Apple continues to overlook as it focuses more on new products for its eager consumers than on addressing the cash mountain problem for its investors.

Related Links:
6 Things Apple Could Do with Its $100 Billion in Cash
The iPhone Economy: A Pocket Full of Miracles
Photo Gallery: 8 Iconic Apple Products

Mar 14, 2012 8:02AM
Yesterday alone AAPL rose 16 + but this foolish article states that the stock will not rise. I think that it has risen more than 20 points since the article was written. Should be taken off this WEB SITE !  !
Mar 13, 2012 10:53AM
Article makes NO SENSE to me ! ! ! !
Mar 13, 2012 11:53AM
"The new gizmo plays catch-up with smartphones, including Apple's own iPhone, by offering 4G broadband access."  Does the author have any clue that there are NO iPhones that are 4G compatible?
Mar 13, 2012 10:52AM
NO STOCK INCREASE ! ! !  WHAT has been going on lately or am I seeing things !
AAPL has gone up; every single day for the last week, but the article above stated no increase as it was already factored in.ERRONEOUS STATEMENTS   WHY !.

Mar 13, 2012 3:59AM
Plus with Verizon there's always the chance that Britain's Vodaphone (GB:VOD) will soon bid. VOD needs to get control of it's 45% investment in Verizon Wireless. This is the cash-cow that pays Verizons dividends and explains why it yields 5.5% but stands on 45 PE.
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