The euphoria that carried Apple’s stock to a record high of $702.10 last September seems to be over — for the moment, anyway. Some 18 brokerages cut their price targets on the company’s stock today. Among them, Topeka Capital’s longtime Apple bull Brian White, who finally trimmed his $1,111 price target on Apple to $888.

That said, there are a few on Wall Street who sounded optimistic notes, even while advising caution. Now that Apple’s guidance is “real” rather than deliberately conservative, investor expectations for its performance should grow more realistic.

More to the point, the market’s current pessimism is probably not an accurate reflection of Apple’s momentum. Remember, in the just-reported quarter it sold 28 percent more iPhones and 48 percent more iPads. Sure, Apple sold only 47.8 million iPhones, short of the 50 million many had hoped. But, for crying out loud, it sold 47.8 million iPhones. In a single quarter.

“We believe a capitulation process is underway — and while painful — it is healthy since the loftiest expectations should be reined in quite a bit,” Barclays analyst Ben Reitzes wrote in a research note today. “This spring, Apple should be readying a bevy of new products and services — and when the builds for these products become known — shares may act a lot better. We have seen sentiment turn quickly before with other leaders like Facebook (in 2012) and Google (in 2011).”

There are hands-down fiascos: MobileMe, Ping and Maps. And there are works in progress: Game Center, iTunes Match and iCloud. And all of them speak to a troubling deficiency that Apple just can’t seem to overcome. One that’s garnering increasingly more public scrutiny. One that, at its worst — say with the disastrous Maps debacle — shows up the company that prides itself on building the “magical and revolutionary” as fallible.

So, as the 2013 Apple rumor mill ramps up, and the prognosticators wonder whether the company’s product pipeline includes a television, a watch, or both, consider this: While Apple could likely use another disruptive innovation on which to build its continued success, what it really needs — crucially — is to do Web services well.

Because to do them poorly is to weaken the hardware and software on which Apple prides itself. These days, our experiences of Web services are part and parcel of our experience of the devices on which they run. When Maps for iOS fails, the iPhone fails with it. Certainly that was the view taken by investors, who whacked $30 billion from Apple’s market cap in the days following the Maps fiasco.

As Barclays analyst Ben Reitzes recently observed, “The Maps debacle showed investors how valuable Google’s technology was — how hard it was to replicate — and how Apple may struggle as the world moves beyond iTunes toward cloud-based services.”

In other words, it showcased Apple’s deficiency in such a way that it actually shook investors’ confidence in the company. It showed them that great Web services are as critical to Apple’s success as great hardware.

Apple, of course, already knows this. That’s why it undertook audacious initiatives like Maps and iTunes Match in the first place. But the company clearly underestimated the effort and skill needed to pull them off with excellence. And now, with all the world watching, it can’t afford to do so again. Maps, iTunes Match, iCloud … they all must “just work.” That’s what consumers expect. And that’s what Apple has promised.

In that sense, Web services are likely to be Apple’s next big battleground. Premium hardware and software aren’t enough anymore. The market wants services, as well. And it wants services that work.

The issue here is not so much that investors worry that Apple might fail to meet the competitive threat posed by companies like Google and Samsung, though that is clearly a concern. It’s the fear that Apple may not have any more disruptive innovations left in it.

Barclays Capital analyst Ben Reitzes speaks to this disquiet in his latest research note, recounting a recent bull/bear debate he held on Apple. Of those attending, 30 percent said they felt Apple was suffering from a lapse in innovation.

“Many of the questions that we fielded were around what Apple could possibly do next to help improve sentiment,” Reitzes explains. “Apple’s multiple contraction to a forward P-E of 10.6x from almost 16x earlier this year at peak clearly seems to indicate that investors do not believe that there is a ‘next big thing’ and that iPhone growth is flattening out.”

Which is obviously a problem. Consider that Apple shares closed Tuesday at $541.39, well short of their September high of $705. This during a time when the company is headed into the holiday season with one of its strongest product lineups ever: A new iPhone, iPad, iPad mini, new iPods and refreshed Mac desktops and portables. If that’s not driving Apple shares skyward, what will?

Reitzes’s take? The long-rumored Apple television. “Apple needs the living room,” he writes. “To that end, we still believe that Apple is looking into a more thoughtful TV effort either in terms of a fully integrated television set, set-top box or home media hub — and we believe plans could be unleashed in [calendar] 2013.”

The operative word here, of course, is “could.” And there are many solid for/against arguments on either side of the Apple television question. That said, when has Apple ever built a product in reaction to investor sentiment? As CEO Tim Cook recently told Bloomberg, the company’s M.O. is to do only a few products and do them very well.

“Part of our base principle [is] that we will only do a few things,” Cook said. “And we’ll only do things where we can make a significant contribution. I don’t mean financially. I mean some significant contribution to the society at large. You know, we want to really enrich people’s lives at the end of the day, not just make money. Making money might be a byproduct, but it’s not our North Star.”

Why? As the use case for tablets and smartphones grows, particularly in enterprise and education, those devices are beginning to eclipse the PC. And in doing so, they’re extending the PC replacement cycle.

“We believe a new generation of consumers and IT workers are figuring out how to compute differently than those that started using PCs in the 90’s — relying more on mobile devices and the cloud — as PCs see significant ‘task infringement’ by the day,” Reitzes theorizes. “After years of denial, most PC industry players still don’t seem to realize what is happening — and don’t have contingency plans.”

And they really should. Because, according to Reitzes, those 350-million-units-shipped years are coming to an end. And quickly, too. He figures that, in a few years, the PC replacement cycle will be a year or two longer than it is now, resulting in a significant drop in shipments — a loss of 50 million to 100 million units in annualized demand by 2015.

That’s a dramatic decline, but one that’s not without its upside.

Tablet makers, for example, stand to benefit quite a bit from the PC industry’s misfortune. Reitzes expects 182 million tablets to be sold in 2013 — up from his prior estimate of 146 million. By 2015, he expects that number to hit 268 million.

And by 2016? An even 300 million.

And in each of those years Reitzes expects the iPad to account for the majority of tablet sales: 61 percent in 2013 and 2014, 60 percent in 2015, and 59 percent in 2016. “We believe that Apple will continue to gain share and be one of the main beneficiaries of the market move toward mobile devices,” Reitzes concluded. “Even with near-term margin pressures, Apple should still generate a disproportionate share of profit in computing over the long-term.”

Say, a remote control?

That’s the theory put forth by Barclays analyst Ben Reitzes, who suggests that the fulcrum of Apple’s TV strategy isn’t the TV itself, but positioning its iOS devices as interactive TV command centers. The iPhone and iPad can already wirelessly stream content to a TV with an attached Apple TV. Why not further expand those capabilities?

“With iCloud, we don’t see any reason why Apple wouldn’t eventually allow an iPad to be an interface for the TV — to perform basic computing tasks with a virtual keyboard like checking emails and calendars, surfing websites, editing your PhotoStream and even chat with iMessage,” Reitzes explains. “These tasks would clearly infringe further on tasks usually earmarked for desktops and laptops — and the iPad and Apple TV combination doesn’t even require Apple to get into the TV market.”

An interesting theory. As Reitzes observes, outfitting iOS devices with functionality like this clearly enhances their use case. And if consumers find that enhancement compelling enough, it could expand Apple’s total addressable market for iOS devices.

Drastically.

Consider that there were about 360 million TVs in North America at the close of 2011. If Apple succeeded in transforming its iOS devices into smart TV remotes, it could add millions of units to its total addressable market.

For what it’s worth, Reitzes hasn’t discounted the idea of an Apple HDTV. He thinks there’s one on the company’s product road map, but it hasn’t yet inked the licensing deals essential to its success.

“Over time we expect Apple will want to get into the TV market, but not until it is able to negotiate a service offering for TV — building on iTunes and iOS — that revolutionizes the market for enjoying content and computing in one platform,” he said. “We believe Apple will be patient until it finds the right cable TV partner to work with to promote this vision.”

Among analysts that follow Apple, there are a few theories emerging on the company’s … imaginary iPhone sales shortfall.

• This particular iPhone upgrade cycle might be larger than expected. Some analysts are reporting that a significant percentage of iPhone 5 buyers are consumers upgrading from the iPhone 4S. According to some recent Apple Store exit surveys — one from Topeka Capital Markets, for example — as many as 35 percent of respondents buying the iPhone 5 were upgrading from the iPhone 4S. In other words, people who aren’t yet eligible to buy the iPhone 5 at a subsidized price are spending hundreds of dollars more to upgrade to it, anyway. And while that obviously doesn’t explain why Apple sold five million iPhone 5s instead of the six million to eight million some exuberant analysts had forecast, it might help explain why preorders sold out so quickly.
• A number of analysts believe that sales might have been significantly higher were it not for component supply constraints. Specifically, they say that supplies of the new in-cell displays that allow Apple to make the iPhone 5 so much thinner than its predecessor aren’t yet high enough to meet the level of demand Apple is seeing. “We believe the key issue in today’s shipment data is in-cell supply constraints,” Barclays analyst Ben Reitzes said in a note to clients. “[Monday's] announcement fits with our view that Apple would only be able to ship limited quantities in the September quarter; we expect a solid production ramp and improved availability in C4Q12. … Estimates for iPhone 5 display supply are for only about 10 million screens for C3Q12, with a significant ramp to start C4Q12.”
• Initial iPhone 5 supplies may simply have been constrained by the length of the one-month-plus manufacturing window Apple has typically allocated for iPhone launches. In other words, it has maxed out capacity, and can’t raise it without adding still more production lines.
• My own theory: The aggressive worldwide rollout Apple has mapped out for the iPhone 5 is perhaps too aggressive, and forced the company to cap sales in the first-wave market in order to retain supply enough for the 22 additional markets getting the device this week. So Apple looked at its inventory, decided five million iPhone 5s was enough for a first-weekend sales boast, and reserved the remainder for the second-wave launches scheduled for this Friday.
• Finally, it could be that analyst expectations were simply too high, and not at all grounded in reality.

But in the end, all of these theories are moot. Because, ultimately, we don’t know how many iPhone 5s were ordered over opening weekend. All we know is that Apple delivered at least five million of them to customers. For all we know, there could have been twice that number in pending orders by the end of the weekend that Apple can’t deliver for another few weeks.

From 16.8 percent to about 4 percent worldwide market share in a single quarter. That is a swift and ugly decline. What’s causing it?

Kindle Fire demand could be dropping off as customers postpone their purchases in anticipation of a new version of the device. Or it could be declining because the Fire was a really well-executed holiday play whose novelty has since worn off.

Or it could be that the iPad 2, which Apple continues to sell alongside the new iPad at a lower price, is winning over some of the same consumers that Amazon has been targeting with the Fire.

Or, because the number of units shipped isn’t the same as units sold, the dropoff in shipments in the Fire’s latest quarter could primarily be the result of a large inventory buildup in the product’s first months on the market.

At $399, the iPad 2 is still twice the price of the Fire. But it’s also $100 cheaper than the new iPad, and comes accompanied by the same vast app and content ecosystem, iCloud, Facetime and other slick features. And that may be discount enough to command the attention of budget-conscious consumers. Indeed, during Apple’s last earnings call, CEO Tim Cook said the iPad 2′s new lower price point was unlocking demand among price-sensitive customers.

If that’s the case, perhaps it’s unlocking demand among potential Kindle Fire buyers as well. It’s worth noting that during the same period, IDC claims that while the Fire’s share of the market fell to 4 percent from nearly 17 percent, the iPad’s share rose to 68 percent from 54.7 percent.

Could there be a correlation there?

Barclays analyst Ben Reitzes thinks there might be.

“The lower priced iPad 2 has seemed to offset some of the original threat of the lower priced Fire,” he says. “Many consumers seem willing to pay $399 for a feature packed tablet with a strong and developed ecosystem rather than $199 for a relatively underpowered tablet.”

Certainly plausible. Anecdotally, I know a few folks who had planned to buy the Fire, only to balk later and cough up the extra money for an iPad 2. Perhaps there are lots more of them out there. Your thoughts?

That’s the word from Barclays analyst Ben Reitzes, the latest Apple observer to express optimism for the company amid the rough patch its shares have been experiencing lately. Hard to imagine that such expressions of optimism are even necessary, considering that Apple’s shares have surged nearly 60 percent to a high of $644 this year. But evidently some investors are too risk-averse and easily frightened to actually own the stock.

Anyway …

Reitzes says that now is not the time to bail on Apple’s stock. And, like Goldman Sachs’s Bill Shope before him, he argues that concerns over softer-than-expected Mac sales, iPhone subsidies and too-lofty expectations for iPad and iPhone sales are misguided. He also notes that, historically, Apple shares have risen significantly in the six months prior to a new iPhone’s debut. Which bodes well for investors, given where we are in the calendar year.

“Our research indicates that Apple’s shares appreciate 31 percent in the 6 months ahead of every major new iPhone ship date,” says Reitzes. “We believe this phenomenon occurs given datapoints from the supply chain start to indicate a significant acceleration in iPhone sales after each launch. … Since we believe that [the] iPhone 5 cycle will be particularly special — and start in the September timeframe — it is not time to give up on Apple’s stock right now.”

In other words, Apple’s market cap is likely to see further gains. And the second-quarter earnings the company will report on April 24 may well be the jumping-off point.

But Cook’s trip may have had another purpose: Finalizing Apple’s long-in-the-offing iPhone deal with China Mobile, China’s largest wireless carrier. Sources say Cook visited China Mobile’s Beijing offices, and while they offered no details beyond that, it’s not much of a leap to conclude that he was there to talk about the iPhone, which is currently offered by China Mobile rivals China Unicom and China Telecom.

“We wouldn’t be surprised if Cook was exploring a deal to distribute the iPhone with China Mobile, Mainland China’s largest mobile phone carrier,” Barclays Capital analyst Ben Reitzes said in a note to clients. “We believe that China Mobile could sell the upcoming iPhone 5 by C1H13, after a fall launch in the U.S.”

That seems a reasonable prediction. Certainly it’s in Apple’s best interests to sign a distribution deal with China Mobile. If, at long last, it was able to add the device to the carrier’s portfolio, it would gain access to an additional 120 million subscribers. That’s a massive addressable market, and one that Apple can’t ignore much longer.

It’s a safe bet.

Barclays analyst Ben Reitzes says that while the debut of the Fire will obviously have some effect on the U.S. tablet market, it won’t have much impact on the iPad market.

“We believe the $199 Kindle Fire from Amazon has ‘paused’ some level of tablet demand in the U.S. given its disruptive price point and that customers are even starting to realize that the iPad is likely to be upgraded in the C1Q (as usual),” Reitzes says. “Our research … points toward C4Q11 production in the lower double digit millions range after a mid-teens iPad build in C3Q11.”

Importantly, Reitzes says even that tweaked build rate still backs his iPad unit sale estimate of 13.9 million for the December quarter. So, in his eyes, Apple will deliver on those “all-time” record iPad shipments.

And as for the Fire?

Well, it’s still quite new. And the tablet market will certainly change again with the expected debut of the iPad 3 next year.

“The jury is still out on the Amazon Fire,” Reitzes writes. “We believe the iPad still stands out as the industry standard in terms of software integration. Some of the early reviews for the Fire are less than flattering. We believe that iPad is set for a new product cycle in FY12, which will reaccelerate the category.”

So why the big spike? There are plenty of theories, but one in particular seems to be gaining traction. Apple has big plans for iCloud and the massive data center infrastructure that supports its various services. Specifically, the company wants to grow it. And, according to Barclays Capital analyst Ben Reitzes, it no longer wants to outsource iCloud’s plumbing. Says Reitzes, “Right now, we believe Apple gets some help for partners in delivering iCloud and iTunes Match — but we believe the company would like to do it all itself.”

Understandable, especially if the partners to whom Reitzes refers are Microsoft and Amazon, whose Azure and AWS platforms are believed to be quietly doing some heavy lifting behind the scenes.

If that is indeed the case, it seems reasonable to assume the arrangement is temporary — and that, perhaps, the purpose of the nonretail capex is to bring it to an end. Beyond that, of course, are Apple’s aspirations for iCloud, which almost certainly entail extending it to movies and TV shows.

“We envision iCloud’s capabilities further expanding with … potential moves into entertainment,” says Reitzes. “We believe the backup capabilities will expand as well — and create more services revenue streams. In our opinion, iCloud is one of Apple’s most important services since the launch of the iTunes store in 2003, given its role as a convenience factor for customers — fostering loyalty within the Apple ecosystem and driving the ‘halo effect’ that helps sell more devices.”

That’s incredible growth, and to hear tell from analysts, it’s really just the beginning. With the iPhone 5 expected at market in October and the iPad 3 presumably headed into the pipeline, Apple’s prospects in China are looking very strong right now, says Barclays analyst Ben Reitzes, in a reiteration of the same bullish growth story we’ve been hearing for months now.

“We continue to believe that Apple’s brand has significant momentum in mainland China — Asia Pacific accounted for 22 percent of revenue last quarter, growing 247 percent year-over-year,” Reitzes said in a note to clients. “We believe that Apple’s iPad and iPhone are set to see rapid expansion in the region with new product cycles next year — perhaps with new carriers as well. We continue to believe that a new iPhone will ship next month and a new iPad line with a higher resolution display will emerge in C1Q12.”

Reitzes expects the iPad 3 to hit the market sometime in March of 2012 with a thinner chassis and higher resolution display and bolstered by an array of iCloud services that will further differentiate it from its rivals and cement its already significant lead in the market.

Says Reitzes, “No clear number 2 [tablet] has emerged either in China or worldwide — as builds are being cut at some major non-Apple brands. The tone around non-Apple tablet competitors is much more subdued vs. our visits to the region last spring, which were characterized by over-zealous tablet forecasts. We believe that Apple will still dominate the market globally.”

Incidentally, Reitzes expects Apple to sell 38.9 million iPads in calendar 2011, an estimate he describes as “conservative.”

As J.P. Morgan analyst Mark Moskowitz wrote in a note to clients Wednesday evening, Apple’s deep executive bench is very much up to the tasks ahead of it.

“While the day-to-day contributions of Mr. Jobs will be missed, we believe that the level of creativity and intelligence assembled throughout the management team and legion of Apple employees can sustain the Apple model and its industry leadership,” Moskowitz said. “We do not expect too much to change within the organization. In our view, the far-reaching successes of the iPhone, iPad, iPod, and MacBook Air reflect the work of many, not one. We have a favorable view of new CEO Tim Cook. He has a proven track record. As COO, Mr. Cook has been integral to driving the company’s unprecedented revenue and earnings growth phase, limiting disruptions to the operations. We expect his knowledge of Apple and its rigid product cycles, supply chain, and partners to result in little change to the go-to-market strategy.”

Barclays analyst Ben Reitzes echoed those sentiments, remarking on Cook’s proven track record. “While we do not believe that Steve Jobs is replaceable, it is worth noting that Tim Cook is a proven executive who can handle the pressure and knows how to run the inner workings of Apple in Jobs’ shadow,” he said. “… While the economy remains a concern for all companies in our sector, we anticipate Apple to gain substantial share in smartphone and PC-related segments as the entire company executes its strategy.”

Piper Jaffray analyst Gene Munster described Cook as “the ideal candidate” to assume the role of the irreplaceable Steve Jobs. “Cook is capable of running Apple, but his rare combination of extreme humility and insatiable motivation make him uniquely suited to assume Jobs’ role as CEO and carry on his work with a peerless executive team,” Munster said. “While there may be concerns among investors as to whether or not Cook can continue Jobs’ streak of innovation, we believe there is no better candidate to assume the role. And in many ways, it will be Jobs and his deeply rooted vision that will always guide Apple and its leaders.”

And finally UBS analyst Maynard Um said he really doesn’t expect things at Apple to change much at all with Jobs no longer CEO. “We expect there to be no transition issues as Cook had been running daily operations as interim-CEO,” he said in a note to clients. “From a longer-term perspective, we believe Apple’s strategy is well laid out and believe Cook and his management team will continue to execute.”

And in all likelihood, that’s exactly what will happen. Because in the end Apple has one of the deepest and strongest managerial benches in the business, and it has been crafted by one of the most innovative minds in the industry. As I wrote back in 2009, “Yes, Jobs’s sensibility pervades Apple’s culture and its products, but that culture and those products are not tethered to his health or day-to-day presence at the company. And Apple’s deep executive bench is more than capable of running it — and running it well — in his absence.”

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According to the latest metrics from NPD, domestic Mac sales for the first month of the September quarter were up 26 percent year over year, buoyed by new hardware and an eagerly anticipated update to Apple’s OS X. That’s more than six times the growth of the broader PC market.

And if it continues, Apple will likely meet consensus estimates of 4.5 million total Mac sales for the current quarter, said Piper Jaffray analyst Gene Munster. “We believe Mac sales benefited from the 7/20 launch of OS X Lion along with refreshed MacBook Airs and Mac minis,” Munster explained in a note to clients. “But these tailwinds will fade throughout the September quarter and year-over-year compares get slightly tougher in the last two months of the quarter.”

The softening PC market seems to have had little to no effect on Mac sales. Nor is it likely to in the future, given current growth trends. As I’ve noted here before, Mac sales have outpaced the broader PC market for 21 consecutive quarters now. And there’s little to suggest that streak is coming to an end any time soon.

Said Barclays analyst Ben Reitzes, “We believe Apple will continue to gain share in Macs over the long term even as the iPad grows. Given the data and our checks, our estimate for Mac growth of 18 percent year-over-year for Apple’s C3Q, may turn out to be conservative even though the global economy appears to be slowing quite a bit.”

Consider Barclays analyst Ben Reitzes’s calendar 2011 tablet forecast. Originally it called for 47 million tablets. Now it calls for 62.7 million. Of those, Reitzes expects 38.9 million to be iPads, significantly more than the 31.5 million he’d originally predicted. The remaining 23.7 million will be “non-Apple tablets,” up from his first prediction of 15.6 million.

The rationale for these increases? For the iPad it’s simple: Improved product availability in the U.S. and abroad and strong demand in the consumer and corporate spaces. As Apple COO Tim Cook said on the company’s last earnings call, “We sold every iPad we made.”

And for those non-Apple tablets? Says Reitzes, “While indications are that sell-through volumes have been soft for competitive products to the iPad, our ‘other’ tablet estimates are still driven higher by the sheer number of other vendors shipping devices into the channel — with some of the largest estimated volumes coming from Samsung, RIM, Motorola, HP, Acer, Asus and Amazon.”

In other words, those companies are shipping a ton of tablets to their retail partners, despite a lack of demand. And no good can come of that. Push too much product into the channel when there’s little demand for it and you end up with an oversupply and the sort of nasty inventory problems that dragged Palm into the mud. And those problems will only grow worse with the debut of Apple’s next iPad, which Reitzes suggests could occur late this year.

“Note that based on increased evidence in the supply chain, it may be possible for a new special edition iPad to ship as early as this fall, featuring an enhanced display, upgraded cameras and faster wireless capabilities — which could make our estimates conservative,” he writes, adding, “Apple does not necessarily need this product to maintain and even extend its lead.”

Indeed. Remember, consumers don’t seem to want tablets … they want iPads.

iPad sales are booming and the iPhone 4 continues to sell well despite its age. Now, with new MacBook Airs and Mac minis on the shelves and the Mac App Store serving up one million downloads of Lion in a single day, Apple is poised to reap the benefits of what up until last week was pent-up demand for those products, particularly the MacBook Air. According to Barclays analyst Ben Reitzes, Apple’s latest ultraslim laptops will give the company a nice little financial bump for the remainder of the year.

“We believe that the new MacBook Air products in particular could be a source of upside for Apple in the 2nd half of CY11,” Reitzes says. “For the September quarter, we estimate Mac unit sales to grow 18% y/y, which may be conservative given anticipation for the MacBook Air. Also, we believe that there was a modest pause of demand ahead of Lion, which consequently should release at least some incremental sales in the upcoming quarters in our opinion.”

Seems entirely reasonable. As Apple COO Tim Cook said during the company’s July 19 earnings call, “I think some customers have delayed [Mac purchases] until Lion becomes available.”

“We haven’t pushed it real hard in business, and it’s being grabbed out of our hands,” Steve Jobs said last year. “And I talk to people everyday in all kinds of businesses that are using iPads, all the way from boards of directors that are shipping iPads around instead of board books, down to nurses and doctors in hospitals and other large and small businesses.”

If Apple’s not pushing the iPad into the enterprise market, how is it getting there? Carried in by the rank and file–just as smartphones were. Employees are buying iPads, and other mobile devices as well, and enterprise is increasingly supporting them on the back end and sometimes even subsidizing them, or their use.

In other words, the consumer market has evolved into a de facto evangelist for Apple in enterprise, a lucky development for the company, which is uniquely positioned to benefit from it.

“This trend should mean that the key to corporate success over the long term is being strong in consumer devices that you use everyday,” says Barclays analyst Ben Reitzes. “As a result, the purchase pattern is shifting toward laptops, tablets and smart phones being bought by consumers (all key areas of Apple’s strength), while direct sales of corporate products have shorter and smaller upgrade cycles. We call this trend the “Consumerization of IT,” which benefits companies with strong consumer appeal and customer service reputations….We believe Apple has a large lead in terms of driving this trend, while it presents challenges for traditional PC vendors, in our opinion. We believe the iPad’s success in the enterprise will help Apple make further inroads into the corporate market with other products eventually.”

Interesting, this vision of the iPad as Apple’s Trojan Horse for enterprise, particularly since it appears to be a natural evolution of the consumer market. And if it accelerates corporate adoption of the device as well as other Apple hardware over the long term–well then, it truly is magical and revolutionary.

Certainly the hardware and OS seem formidable enough to at least differentiate the device in an increasingly crowded market. And if HP’s integration story proves to be as good in practice as it sounded on stage in San Francisco yesterday (printers, phones, PCs and tablets all connected via webOS), the TouchPad could mount a decent challenge to the iPad–even if it doesn’t arrive at market until after the debut of the iPad 2.

Though he feels the summer ship date is just too late, Barclays analyst Ben Reitzes was impressed by the TouchPad’s hardware and OS. “[The TouchPad] appears to have very good software and syncing capabilities (HP Synergy feature) and some promising features,” he said in a client note today. “Also we point out that HP is clearly still investing not just in tablets but its smartphone business, which provides a good link between products for the future. Along with a nice OS, we believe that HP’s channel strength, link to its printing franchise, and overall brand strength could enable it to be one of the few relevant tablet players far behind Apple over the long-term.”

J.P. Morgan’s Mark Moskowitz had good things to say as well. “Our initial take on the TouchPad: better than expected,” he said. “Beyond Apple’s iPad, we previously had not been impressed with the other tablet entrants. HP’s TouchPad moderately changes this view.”

Interstingly, Moskowitz doesn’t seem quite as concerned about the device’s launch date. His feeling is that with the TouchPad, HP isn’t taking on Apple as much as it is the conga line of vendors chasing it. “For HP,” he said, “we believe the initial mission is to capture meaningful share among the non-iPad tablets, i.e., Android and Windows-based devices.”

Which is an interesting way of looking at the company’s strategy. Perhaps HP isn’t trying to out iPad the iPad–it’s trying to out iPad the iPad’s imitators, a far less daunting task.

And by the end of fiscal 2012, said Reitzes, that installed base will have reached over 200 million devices, driven by what he called the “FaceTime networking effect” that encompasses the better part of Apple’s consumer product line–something the company’s rivals may not be able to duplicate with video conferencing apps of their own.

“While Android and competitive devices either have or are working toward incorporating a similar feature, we believe this particular feature benefits from Apple’s vertically integrated model,” Reitzes said. “Experiences across disparate hardware platforms tend to vary–with Apple’s one of the most reliable in our trials. Also, this feature allows Apple to mine the millions of iTunes users who have Apple ID’s–and provide an attractive feature across devices that can be put into use immediately. We believe the ‘FaceTime networking effect’ could enhance a halo effect on Macs and iPads as the feature becomes available.”

Oh, and that FaceTime-compatible iPad that Reitzes says Apple will sell 10 million of? He expects it to be announced over the next month with a shipping date near the end of March or early April. And like most folks, he assumes it will include a thinner and lighter design, front and rear-facing cameras, a USB port, and an iPhone-like high resolution display.

[Image credit: FacePlant]

In his preview of CES, Barclays’ Ben Reitzes claims the company need not worry much about the conga line of iPad rivals expected to be announced at the show. If CES shows us anything, he says, it will be just how great Apple’s lead in the tablet space really is.

“At CES we believe that we will see many players attempt to mimic Apple’s model, with promises of content integration, battery life and software that will ultimately fall short,” Reitzes writes. “Outside of Apple, we believe many tablets will not meet bullish sales expectations. Like MP3 players, we believe some investors may learn the hard way that Apple’s ability to marry content, software, hardware design and style is unmatched in the tech sector. We believe that the evolution of the tablet market will look more like the iPod market than the phone market-–with Apple set to dominate.”

That seems a relatively safe prediction given what we’ve seen of the market to date–more so given the next-generation iPad will likely arrive at market around the same time as a lot of these new first-generation tablets. Reitzes figures the iPad 2 will be announced in the next six weeks, along with an April ship date. And he also expects it to feature front- and rear-facing cameras, a USB port and a higher-resolution display.

As far as 2011 tablet sales go, Reitzes is looking for upward of 38 million units, with the iPad accounting for about 60 percent. That’s about 23 million, which Reitzes says is likely quite conservative.

“We believe the iPhone should see continued solid growth into the December quarter with support from improved inventory in the US,” Barclay’s analyst Ben Reitzes said in a note to clients today. “Apple has now expanded distribution to Target (Target also sells the iPad) to join others including Apple stores, AT&T, Best Buy, Radio Shack and Wal-Mart. Perhaps more importantly, we believe availability is improving overseas, with the iPhone 4 set to ship for its first full quarter in China. International demand seems strong into calendar year-end.”

For the quarter ending in December, Reitzes figures Apple will sell 14.8 million iPhones, with sales ramping up after that, assuming the company moves to a multicarrier model in the states. Says Reitzes, “As we move into C1Q we continue to believe it is quite likely that we will see the iPhone introduced on Verizon in the US which should continue sales momentum. By CY-end 2011, we believe Apple will have more than 2 carriers in the US, which could help its market share vs. Android significantly.”

This being Apple we’re talking about, that evolution is likely already well under way and perhaps–perhaps–being engineered at the company’s massive new North Carolina data center. With its 500,000 square feet of data center space (currently, sources tell me that Apple is considering doubling that) the facility has been built for something. And what better use to put it to than the cloud services that might completely eliminate the need for high-capacity hard drives and give the Air storage to match its performance characteristics.

Were Apple to create the cloud-based version of iTunes that’s long been rumored–one from which users’ entire iTunes libraries could be streamed–and were it to bolster MobileMe’s iDisk and Gallery services with more-robust storage, even the 64GB Air might seem an attractive option to the high-end user. And Apple’s new N.C. data center, which is nearly five times the size of the one it operates in Newark, Calif., may well make both those things possible.

“We believe it makes sense to have a cloud service linking Apple devices to personal photos, videos, games, music and other entertainment–eliminating the limitations and expenses of excess storage,” writes Barclays analyst Ben Reitzes. “We believe such a service would only enhance the loyalty toward Apple and the benefits of using devices in its vertically integrated model.”

Saving to disk is slowly becoming a fixture of the past and, as Apple’s recently rejiggered Apple TV business model demonstrates, streaming is the future. Which makes perfect sense, when you think of the MacBook Air as the future of the notebook.

Don’t underestimate FaceTime, Reitzes said in a note to clients today that suggests we’re at the beginnings of a FaceTime networking effect that will goose sales across many of Apple’s product lines, particularly if Apple (AAPL) adds support for the video conferencing feature to iPads and Macs, which seems likely.

“We envision a world eventually where all major Apple devices incorporate FaceTime, including Macs, iPhones, iPod Touches and iPads,” Reitzes writes. “While Android and competitive devices either have or are working toward incorporating a similar feature, we believe this particular feature benefits from Apple’s vertically integrated model…. We believe the ‘FaceTime networking effect’ could provide a halo effect on Macs and iPads once the feature becomes available. Note that FaceTime is an ‘open standard’ so if Apple is successful in making this feature ubiquitous, more non-Apple devices could be made compatible in the future.”

Running with that thesis a bit further, Reitzes figures Apple will have sold some 63 million FaceTime devices by the end of fiscal 2011–40 million FaceTime-compatible iPhones, 15 million FaceTime-compatible iPods, and 8 million FaceTime-compatible iPads. And he says that number will more than double the following year.

“[In fiscal 2012 we see] an installed base of over 150 million FaceTime enabled devices, which could prove conservative if FaceTime is put in all iPads and all Macs,” Reitzes concludes. “Given Apple’s high share among college students, it would seem like it could basically get to a point where an entire campus could communicate using FaceTime in some way on a device if desired. While we believe the Android platform can do a good job with this type of feature, it seems that Apple has the complete package to make FaceTime grow into a multiplier for its device sales through vertical integration.”

[Image credit: FacePlant]

Though the clamor over a design issue that can diminish the iPhone 4’s signal strength might drag on the company’s shares, as it is today, Apple (AAPL) probably isn’t going to issue a product recall.

Said Piper Jaffray analyst Gene Munster, “We see [a recall] as a highly unlikely scenario given the issue is completely resolved with a case, which is a significantly less expensive solution for the company.”

Citigroup analyst Richard Gardner agreed.

“We consider the probability of a recall to be very low given our view that the issue in question is not serious enough to warrant a recall,” he said in a note to clients today. “While bridging two portions of the antenna with one’s hand on the lower-left corner of the phone does cause signal degradation, it does not typically result in dropped calls unless the signal from the cell tower is already weak. Excluding this issue, overall signal reception on iPhone 4 seems at least as good, if not slightly better, than reception on the iPhone 3GS.”

Over at Barclays Capital, Ben Reitzes offered a similar take. “As users, we have experienced some issues w/call drops; however, we have found drops go away after attaching a bumper accessory, which is quite useful anyway,” he wrote. “To date, we have not seen any overwhelming evidence of iPhone 4 units being returned.” And if the current spate of negative headlines should change that, well, it’s probably not going to have much of an effect on the company’s bottom line anyway.

Said Reitzes, “Worst case is some near-term sales are impacted and/or Apple revises its policy on ‘not giving away’ free bumpers, but usually demand just gets pushed to a slightly later date. Therefore, we do not believe these issues will impact Apple’s product momentum or the story materially at this time.”

To Reitzes, the iPhone 4 antenna issue is “overblown,” a sentiment shared by Munster as well.

“Ultimately we believe this PR black eye takes away some near-term upside potential to our iPhone estimates, but it does not change the long-term trajectory of the iPhone. While the issue has gained significant traction in the press, the reality is that we estimate this problem periodically affects 25 percent of iPhone 4 users given the fix is easy (a case for the iPhone), and 75 percent of customers choose to use a case anyway. While it has reached a boiling point, we believe the magnitude of this issue is being overblown.”

And seriously, an iPhone 4 recall? Steve Jobs would rather recall hiring John Sculley.

[Image credit: Rick Smolan]

“Two people familiar with the plans” tell Bloomberg that Verizon (VZ) will begin peddling the Apple (AAPL) phone in January, after the exclusivity deal with AT&T (T) expires. No details beyond that, though a research note this morning from Barclays (BCS) says we might expect an announcement at the Consumer Electronics Show.

“Our component and distribution checks indicate that Apple is likely to begin production of a CDMA iPhone, possibly with LTE support, in 4Q10 for launch at Verizon in January 2011, perhaps at the Consumer Electronics Show (CES),” analyst Ben Reitzes wrote. “We believe Apple’s U.S. unit volume is likely to grow from 11 million units in 2010 to at least 15 million in 2011 as a result, with 9 million at Verizon and 6 million at AT&T. We also believe Apple may launch the device in other CDMA markets, in particular China with China Telecom.”

Whatever. As I’ve said before, at this point I’d be happy to see the iPhone added to Verizon’s lineup, if only to put an end to these seemingly endless rumors.