Apple's next big thing? Video, analyst says

Clues in future iPhones and iPads, massive data center point to video-based subscription services

Apple's next big thing may be a video platform that combines cameras in the next versions of the iPhone and iPad with the giant data center the company's building in North Carolina, an analyst said today.

During a quarterly earnings conference call with Wall Street and industry analysts Tuesday, Apple's chief financial officer Peter Oppenheimer cited "future product transitions" as a contributing factor to the anticipated decline from a 42% margin for the year's first quarter to a 36% margin for the quarter ending June 30.

The conservative guidance isn't unusual: Apple typically underestimates its margins for upcoming periods, and often explains that "future product transitions" are one reason why it won't clear as much profit.

But one analyst read more into those tea leaves.

"They seem to be saying that there's more to the next quarter than the introduction of a new iPhone," said Ezra Gottheil, senior analyst with Technology Business Research, referring to the expected launch of Apple's next iPhone this summer.

Gottheil thinks that Apple is ready to make a major move into video, and based his bet on a series of clues in the company's upcoming hardware, as well as the $1 billion data center in North Carolina that's now hiring personnel.

Gottheil's prognostications have been spot-on at times, off the mark at others. A year ago, he bet that Apple would enter the netbook market with an "ipod Touch on steroids," a good description of the eventual iPad. In December 2008, however, he predicted that Apple would launch a pair of netbook-style systems the following month, something Apple did not do.

"The front-facing camera in the next iPhone is something we've always wanted," Gottheil said, referring to this week's disclosure by tech blog Gizmodo that the 2010 iPhone will have two cameras, including a new one that faces the user. "But that also makes sense if Apple is going to push into video conferencing, video social network or video social gaming."

Calling that market a "kind of white space," Gottheil sees it as one of those opportunities that Apple has historically grabbed. "Apple is the kind of company that could make that a big deal," he said.

The current iPad , which lacks a camera -- one of the pieces that was on most wish lists before the tablet debuted -- also seems to have space in its current design for a front-facing camera, Gottheil added. Others, including teardown expert Aaron Vronko of Rapid Repair, have also speculated that the next iPad will sport a camera. "It looks like it's all ready for the camera, even including a hole in the glass for the lens," said Vronko, who earlier this month tore apart the first-generation iPad . "Apple probably made a game-time decision not to include it."

Also in play, said Gottheil, is the $1 billion data center that Apple began building in Maiden, N.C., last year. Apple currently has 15 positions listed on its jobs site for the data center.

"That's a humongous data center," Gottheil observed. While others have speculated that the center will power an iTunes music streaming service or store customers' iTunes libraries for everywhere access, Gottheil as a different idea. "Apple needs to get into the online services business, but it can't be plain vanilla," he said. "That's not what Apple likes to do."

Instead, he believes Apple will craft a video platform that other developers can use to build video-enabled iPhone and iPad applications, then use the data center as the switchboard that, for a fee, routes the ensuing data traffic. "They'll build the platform, make an application or two -- maybe a game where people see each other as they play -- and then provide some kind of switchboard service. That's exactly the kind of thing that they like to do."

In a follow-up research note that Gottheil sent to clients today, he also hammered on the idea. "By providing critical applications and a platform for third-party development, Apple could create a compelling and very sticky subscription service," he wrote.

Not everyone buys Gottheil's theory on video and the data center. Brian Marshall, an analyst who tracks Apple for BroadPoint AmTech, agreed that the next iPhone would have a camera, and believes a refresh of the iPad with a camera will appear in time for this year's holiday season. But he has different plans for the data center.

"That's for their cloud-based service," Marshall said, "which will probably be hosting iTunes libraries in the cloud. That will let customers access their iTunes [music] from anywhere, and untether it from their computers."

Nothing about parsing Apple is easy, said Gottheil, who acknowledged that his conjectures could come to naught. "They're always manipulating us with their guidance," he admitted, talking about Apple's tendency to under-promise and over-deliver, and the often fruitless attempts by outsiders to penetrate the company's veil of secrecy. "But this could be a place for Apple to play in online."

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