Apple announces iPhone 4 – nice update but few surprises

Apple CEO Steve Jobs today announced the new iPhone, called iPhone 4, which will be released in the U.S. on June 24^th. However, a leaked iPhone, which was left at a bar by an Apple executive and exposed by Gizmodo, has already revealed most of the new iPhone's features, leaving few surprises. Key updates include a 24% thinner design, front-facing camera, limited multi-tasking and a video chat program called FaceTime.

The new iPhone is intended to allow Apple to continue to compete against its rivals, with smartphones using Google's Android continuing to enter the market, and RIM expected to release its OS 6 and new touch screen-and-keyboard Blackberry 9800 in July.

Apple (AAPL) shares closed today down 1.96% at US$250.94. It recently surpassed Microsoft as the most valuable technology company in the world. While Apple's shares have risen tremendously in the past 10 years, long-term challenges loom in the horizon. I see two main long-term challenges for Apple, both of which can slow its growth and take a significant chunk off of its share price.

The first long-term challenge to Apple is Steve Jobs himself. While it is certainly a plus for a company to have a brilliant and popular CEO, it can be a minus for the long-term. Apple's R&D is far more dependent on Steve Jobs than RIM or Google are on Mike Lazaridis or Eric Schmidt. For example, Jobs personally oversaw the development of the iPhone and the iPad. 

In addition, Steve Jobs has health problems, having appeared sick before undergoing a liver transplant and a 5-month leave of absence in 2009. At the age of 55, it is reasonable for a CEO to work another 10 years until the retirement age of 65. However, with Steve Jobs' history of health problems, 10 more years as the CEO is probably too optimistic. With his intense involvement in the development of Apple's key products, his departure would easily take 20% to 25% off of Apple's share price.

The second challenge facing Apple is directly caused by its success. Like Microsoft found out years ago, being the dominant number one player in an industry also comes with legal troubles. On May 28, it was announced that the US Department of Justice is in an antitrust investigation into Apple's practices. The investigation followed a complaint that Apple pressured music labels not to support Amazon's promotion. With a 70% share of the U.S. digital music download market, antitrust lawyers believe that federal antitrust regulators may be able to build a case against Apple.

One simply to look back at the legal troubles that Microsoft faced, especially from Europe, to realize that antitrust lawsuits can severely hamper Apple's growth.

Thus, while the short-term prospect for Apple remains bright, with its share price likely to hit US$300 in the next 12 months, its long-term prospects appear more troubling. The dependence of Apple on Steve Jobs and future antitrust cases raises the question of whether the $300 level is as high as Apple shares will ever get.