The truth of the matter is simple- regardless of all the noise about the iPods and iTunes, the company's financial performance has been and continues to be shaped predominately by its Mac unit (it generates half of AAPL's revenues and even higher share of profits). And while expectations for the iPhone's success are great, I think that AAPL might have made a very big strategic mistake by locking itself up into exclusive relationship with a single carrier in the US a year ago...

It is now only a matter of time before AT&T once again releases the number of iPhones sold in the US (4-5M estimated for the quarter), but it will also likely report a ridiculously high subscriber "churn" rate. A simple glance at Ebay's daily auctions seems to indicate that with number of 3G iPhones resold daily at $800+ a piece easily exceeding a thousand items a day, AAPL and AT&T might have permanently given up hundreds of millions (several billions of dollars?) in revenues to the likes of Ebay and other "shrewd" middlemen all over the world.

Buying an unlocked iPhone in most BRIC countries is now not only a habit, but rather a "must" for any "new middle class" wannabe (in places like Moscow unlocked 3G iPhones are now being sold in thousands at $1200+). It also unfortunately means that by the time the "legal" iPhone actually makes it to countries like Russia and China, the "easy", pent up demand for the phone is likely going to be already satisfied, with AAPL receiving only a minimal benefit, thus the ultimate demand could ultimately prove to be much lower than is now widely estimated...

Consider this- many analysts now speculate that Russia alone has around 600K iPhones in circulation, with China potentially accounting for another 1M of "missing" iPhones. Thus even though Russian carriers like MBT and VIP put on a "brave face" by promising to sell 3.5M new iPhones in the next several years, these number simply look astronomical and are highly unlikely to be achieved...

With iPhone's business model now heavily reliant on the one-time cash payment from a "partner" carrier albeit at a healthy margin, and without a steady stream of recurring monthly commissions/license fees (like RIMM's blackberry), the value of the iPhone unit is definitely nowhere close where it could have been, or what is now assumed by most of the analysts.
It is widely acknowledged by many observers that as many as 25% of the iPhones purchased here in the US end up being unlocked on the other networks, and thus with every "unlocked" unit representing another lost opportunity to Apple, I think it is very unlikely that iPhone unit alone can deliver the growth in earnings high enough to justify the still hefty multiple and growth expectations of the AAPL stock...

Remember, over a quarter of AAPL's revenues in the form of iPods (Estim. $9B out of $33B) is no longer growing and could even go down y-o-y in 2009...Plus, let's not forget that all AAPL's products simply define what "consumer discretionary" term actually means. And as it now becoming increasingly clear every day, unfortunately, the timing for significant growth in consumer discretionary purchases is simply not that great. With US economy on the way to prolonged recession (actually I think we are there already), there is simply not likely to be enough discretionary spending out there for all the new and improved iPods, iPhones and iMacs whatever they might be...

As the anemic 0.5% growth rate in revenues from iPods sold last quarter should have shown -not even AAPL's unmatched innovation could force the consumers to substitute their perfectly good iPods with new shiny iTouches and thus company's "overly conservative" margin guidance for the current quarter, could actually indicate that AAPL is finally acknowledging that prices for its new products are likely going to head down in the future, and thus not even the "monster" iPhone sales could possibly justify the "expected" 25% growth expectation that landed AAPL into my "cheap stocks" to begin with...

So to sum it up, I still think that while AAPL is a great company with unmatched products, shrewd management and loyal customers but, at the time of this writing at $175 a share, I personally do not believe that the risk/return tradeoff for this stock (not a company) is favorable. It is quite possible that given some luck, the market could carry AAPL another 5-10% higher, but at this price just as easily any negative news could easily lead to a gap down that could be quite severe"

Here is another concern for shareholders- while AAPL is arguably more innovative than Microsoft it is certainly behaves as also a "less mature" company, and I don't quite mean that in a "good" way. I personally still cannot quite comprehend why would a company with $20B (15% of the market cap) in cash on the balance sheet does not deploy it in a productive way. Steve Jobs needs to swallow his pride and do the right thing- buy back stock, pay a dividend or at the least make a smart acquisition...So absent good news on the economic front and smart capital allocation announcements, AAPL is at best a good "hold" here.

P.S. Forget all the fancy discounted cash flow analysis- (I have done one and it's lower than the current price) here is a high level "Vad's sum of the parts valuation" for AAPL:
"PC Unit- value no more than DELL= $45B; iPod/iTouch with iTunes- value no more than the entire Sony Corp=$40B; iPhone's unit value no more than a 1/3 of RIMM based on the number of subscribers and an "inferior business model"=$25B. So even this very rough but generous total target price comes out to roughly $110B which is still a roughly 15-20% discount to today's price.

Stay safe out there, and e-mail me your comments at skepticalcapitalist@gmail.com