CUPERTINO BUSINESS REPORT
A New Year, a New Record and a New Problem for Apple

Hopes that Apple (Nasdaq: AAPL) would close out 2009 with a resounding bang were dampened somewhat with Tuesday's news that Nokia (NYSE: NOK) is widening its patent lawsuit against the company. It sent Apple's share prices down from Monday's record high closing of US$211.61 to $209.10 at close Tuesday, a slip of about 1 percent.

Monday's prices had been buoyed in part by the news that iPod touch owners downloaded 172 percent more apps from the iTunes App Store than iPhone owners did on Christmas day; iPod downloads usually hover well below those going to iPhones. More importantly, the news pointed to the possibility of Apple getting a whole new crop of potential users for the iPhone in the future, as iPod touch owners often tend to be younger users who have yet to purchase a first smartphone.

iPhone Envy Rules

Some Apple investors began running for cover on Tuesday after Nokia announced that it's filing a complaint with the United States International Trade Commission alleging that Apple infringes seven Nokia patents in "virtually all" of its mobile phones, portable music players, and computers.

This was an expansion of Nokia's initial suit against Apple, which was filed in Delaware in October. That lawsuit alleged Apple had infringed 10 of Nokia's patents, triggering a countersuit by Apple earlier this month.

It's important to remember, however, that the stock's Tuesday closing price of $209.10 was its second highest ever. The third highest was the $209.04, chalked up on Dec. 24.

Further, Apple recently honed its already sharp legal teeth with the addition of Intel (Nasdaq: INTC) general counsel Bruce Sewell to its legal ranks. As it happens, Sewell is an antitrust expert.

The question many investors may be asking is, will this legal battle force Apple to tap into its cash reserves? After all, the lawsuit could take years to resolve, unless both parties quickly agree to settle out of court.

The lawsuit probably won't make a large impact on Apple financially, Broadpoint Amtech analyst Brian Marshall told MacNewsWorld. "Legal expenditures are part of their operational expenses, and I don't really see too much change there. It's all part of business"

So stop worrying, kids, and listen up: This company is good for its shareholders' wallets.

Reach Out and iPod Touch Someone

On Monday, analytics tool developer Flurry released statistics showing that on Christmas day, iPod touches downloaded significantly more applications from the App Store than iPhones had. It's usually the other way around. That's a lot of iPods under a lot of trees.

This surge, and knowledge that the iPod has a strong foothold in the teen and pre-teen markets, convinced Flurry that the iPod touch is helping Apple lay the groundwork for more iPhone sales in the future. The interfaces on the two devices are extremely similar; the iPod touch simply lacks phone functions. Get a teen used to an iPod touch, and he or she will more likely reach for an iPhone in a few years.

The touch's skyrocketing sales came as no surprise to Marshall. "We were thinking it could be an iPod touch Christmas, and that was the case," he said. December's iPod touch sales worldwide likely exceeded 7 million units, he estimated.

That said, the iPod family has maxed out, Marshall thinks. "We believe the iPod family has finally reached a point of market saturation," he pointed out. Next year, iPod sales will fall about three percent year over year, he predicted.

Still, Apple will sell about 50 million iPods worldwide, Marshall said. That's no small figure.

Cupertino might seek to balance off the fall in iPod sales with the launch of a new tablet computer, which is widely expected to hit the market by the first half of 2010.

Verizon Flexes Its Muscles

AT&T (NYSE: T) has been the exclusive U.S. carrier for the iPhone for two and a half years, but its wireless network is struggling under the weight of the popular, data-chugging device. This week, the carrier briefly halted online sales of the iPhone to anyone in New York City, a place where its services are particularly strained. The company offered a number of differing reasons for the short-lived shutout -- everything from suspicion of online fraud to a business-as-usual change-up to its promotions and distribution channels.

Verizon is often looked to as the carrier most likely to offer the iPhone when AT&T's exclusive reign ends. Verizon has mostly kept mum on the issue, but earlier this month, a Verizon official said the company is prepared to take up the iPhone and support the spurt in traffic that would cause -- hypothetically speaking, of course.

That's the strongest indication yet from Verizon that it's interested in the iPhone, which it had previously turned down back when Apple was shopping for its first carrier partner. "Apple needs to get on another tier one carrier if it's to grow in the U.S.," Peter Farago, Flurry's vice president of marketing, told MacNewsWorld.

Verizon had previously indicated that it's relying on Android phones as a key marketing strategy and teaming up with Google (Nasdaq: GOOG) to work on Android. That, Farago said, was a strategic move to strengthen its position when Apple comes calling.

"With all the love it's been giving to Google and Android, Verizon's been levering up to bargain with Apple," he explained. "Android has been the best new challenge to the iPhone, and we estimate at least 50 new Android handsets will ship next year."

If Verizon does carry the iPhone or some other Apple product (perhaps the expected iTablet?), then Apple's share prices may jump yet again.