WWDC, yet again

Brad Stone has an article in The New York Times about the upcoming Worldwide Developers Conference:

With its coveted gadgets and resurgent stock price, Apple has cast something of a spell on both consumers and investors. At its annual Worldwide Developers Conference, which begins here on Monday, Apple executives will try to sustain that magic, using what has become one of their highest-profile events of the year.
It will not be easy. While he is fond of surprises, Steve Jobs, Apple’s chief executive, whose personal star power has been known to amplify the company’s message, is not likely to be there. The company says it continues to expect his return from medical leave at the end of the month.
Apple must also meet sky-high and perhaps unrealistic expectations from enthusiasts and analysts, and it is just as likely to draw attention for what it does not unveil as for what it does. That challenge is partly one of its own making. Apple’s strategy— particularly with the iPhone— has come to depend on a steady stream of hit devices that are viewed by consumers as being so far ahead of the competition that they are worth paying extra money. But the competition is now catching up. Palm, Google, Microsoft, Nokia, and Research in Motion, maker of the BlackBerry, are all at varying stages of developing and introducing their own iPhone-like devices and software, along with easily accessible stores for the small programs known as applications, or apps, that run on those devices. In some cases, those companies are releasing a greater variety of phones, on more wireless carriers around the world, than Apple.
To maintain its advantage, Apple must preserve the impression that it is far ahead of rivals when it comes to the capabilities and the “cool” factor of its devices. “If they start making products people don’t want, and start losing users, then Apple’s strategy will run into problems,” said Benjamin Reitzes, an analyst at Barclays Capital. “If they continue to have an aura where their products are seen as defining the marketplace, they are going to be fine. But that’s going to be the challenge and the opportunity for Apple.”
For now at least, Apple appears to have a comfortable lead in the simmering smartphone battle. In the last two years, it has sold more than 37 million iPhones and the similar-looking iPod Touches, and the devices have become its most profitable product category. Apple’s stock has nearly doubled in the last six months, largely on the iPhone’s inexorable momentum, although it is still down 28 percent from its high in December 2007.
The iPhone has also attracted an enthusiastic community of independent software makers that have created about 40,000 free or low-cost applications for the devices. Apple now celebrates that wide range of programs, from flight simulators to spreadsheets, as one of the major differences between the iPhone and competing systems.
Apple’s goal for next week: to keep the energy, momentum and spotlight focused on the iPhone and away from its rivals, like the new Pre from Palm, a well-reviewed new phone that goes on sale Saturday. Apple is expected to use its keynote presentation on Monday to demonstrate the new types of programs that can be created on the latest version of the iPhone’s operating system. Developers will be able to charge for certain features within their programs (perhaps a new level within a game), and applications will be able to send alerts to users even whey they are not actively running. Apple has also said it will show an early version of its latest operating system for the Macintosh, dubbed Snow Leopard.
But talking about new software can be dull. So analysts point to Apple’s need to surprise its fans, and to its dwindling inventory of iPhones in stores, and predict that Apple will introduce a new iPhone model next week as well. Its new tricks could include the ability to record video, and an internal compass that will add extra intelligence to the device’s awareness of its location.
“Apple’s objective will be to clearly and strongly show why the iPhone platform is the best for developers, and that means there’s a high probability Apple will announce one or more phones at the conference,” said Michael Abramsky, an analyst at RBC Capital Markets. Satisfying its large audience of developers may be Apple’s most significant challenge. They want to know they can build profitable businesses even if they focus exclusively on the iPhone, and that Apple will continue to do its part by wooing consumers with compelling new gadgets. “We want to hear that there are going to be cool new devices, because that means our market gets bigger,” said Bart Decrem, the chief executive of Tapulous, a company in Palo Alto, California, that makes musical games for the iPhone.
Apple has actually set a high bar for itself. Unlike its rivals Google and Microsoft, which license their mobile operating systems to many phone makers, Apple builds its own hardware and software and carefully strikes exclusive relationships with wireless carriers that are willing to heavily subsidize its devices. The strategy depends on a constant flow of new products that people are willing to switch wireless companies and pay extra to use.
That same strategy— introducing expensive but elegant products with high switching costs— is showing signs of strain in other parts of Apple’s business. Although Apple has performed better lately than other American computer makers, its sales of Mac laptops and desktops declined by three percent in the first three months of the year. That was the first time in six years that sales in Apple’s personal computer business had a year-over-year decline. Meanwhile, the Taiwanese manufacturers of the smaller, cheaper computers called netbooks, like Acer and Asustek, continue to have growing sales.
“Apple has to address the structural slide of the PC industry to more value-priced products,” said Ashok Kumar, an analyst at Collins Stewart. But Apple is not expected to talk about the Mac next week, and that could be emblematic of one of the largest problems the company faces. Apple watchers and investors have many questions that Apple does not seem to want to answer in public, and they could punish the stock if they come away from the conference disappointed.
The big questions include whether Apple is working on any entirely new product lines (like a much rumored tablet computer), what it might do with its $29 billion hoard of cash, and how Mr. Jobs’s health is faring.
Mr. Jobs, Apple’s innovator in chief, has not been seen in public since last October, when he unveiled a line of laptops at Apple’s headquarters. A survivor of pancreatic cancer, Mr. Jobs has been on medical leave since January. Two people close to his personal circle say he looks healthier, and they expect him to be back at work full time soon. Apple will say only that it still expects Mr. Jobs back at the end of June.
That is one area where the expectations of Apple observers and investors may have fallen somewhat. Apple has thrived in the last six months under the leadership of Timothy Cook, Apple’s chief operating officer, who has handled day-to-day operations during Mr. Jobs’s absence. If Mr. Jobs does not return, or returns in a diminished role, investors and fans may no longer see it as the end of the world. “Apple has had a nice rally because they put up very strong numbers, and at the end of the day it will still be all about numbers,” said Mr. Reitzes of Barclays Capital.

Rico says it's only his lack of capital that keeps him from contributing to Apple's sales...