For iPad3 Investors, the Real Winner is Verizon
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The Fiscal Times
March 8, 2012

Another season, another Apple product debut.

This spring’s new Apple gizmo – almost certain to generate still more cash for the company that is already sitting on nearly $100 billion of the stuff – is the “iPad3.” Unveiled yesterday and simply called “The New iPad,” the device will start shipping next week, and Apple devotees will doubtless begin lining up at stores as soon as this weekend, camping out on the streets in order to be among the first to get their mitts on the new tablet.

Related: The Apple Economy

While the news was all the buzz among the technoscenti, it didn’t do a great deal for Apple’s stock price yesterday. While the Dow Jones Industrial Average and the S&P 500 gained between 0.6% and 0.7% yesterday, Apple shares barely budged. 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 the screen of an old black-and-white television with rabbit ears on top. But it also fails to support Adobe Flash, meaning that users will trip over an ever-increasing amount of content that they simply can’t access with their iPads. 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, older, clunkier, heavier, and 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-based pediatric hospitalist Darryl Morris, who hit the “buy” button on Apple.com and eagerly awaits delivery of his first iPad next 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 iPad2 to shift to the newest offering instead. It’s unlikely to prompt a mass upgrade on the part of those already owning the iPad2.

At this point, it might make sense for investors looking for a way to play the new iPad to look beyond Apple itself, and instead look at 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 them to sign up for service plans with either AT&T or Verizon. 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 company’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.

Business journalist Suzanne McGee spent more than 13 years at The Wall Street Journal before turning to freelance writing. Author of the book Chasing Goldman Sachs, she has written for Barron’s, The Financial Times, and Institutional Investor.