Faced with a barrage of queries and a possible Congressional hearing, Apple Inc. (AAPL) has reportedly updated its iPhone to limit the amount of data stored on the device related to recently visited locations.
New Software Details
The updated iOS 4.3.3 software, when installed in the iPhones, deletes the location data cache when the location-based services is turned off and no longer backs the cache up to a computer via iTunes. Apple also released a separate downloadable software for CDMA network-based iPhones.
This new software should be able to negate the recent concerns about the transmission of personal information from smartphones and its subsequent usage by smartphone makers. The concerns were raised by researchers Alasdair Allan and Pete Warden at a technology conference in Santa Clara, California.
The primary concern for the iPhone and iPad users appeared to be that computers were recording their location data every twelve hours without their knowledge. The information was then being stored in an unencrypted format, making it easier for hackers or any third party to pick up.
The Other Infringers
Besides Apple, there had been similar allegations of data storage against Google Inc. (GOOG) and other mobile operating system developing companies like Microsoft Corp (MSFT), Nokia Corp (NOK), Research In Motion Limited (RIMM) and Hewlett-Packard Co. (HPQ).
The spotlight has mainly been on Google and Apple as these two companies are developing the most popular operating systems in the country.
Following the allegations, countries such as France, Germany, Italy and South Korea have started investigations on Apple devices.
Until recently, data about user behavior or location was collected from personal computers. However, with the rise of Internet-enabled phones, there has been a subsequent expansion of the market dealing with the collection of location information and personal data. According to the research firm Gartner Inc., there is a $2.9 billion market for location-based services and it is expected to grow to $8.3 billion by 2014.
Apple was in all probability thinking of tapping this opportunity by dippinginto its vast user base to collect necessary data. However, it is apparent that Apple has made the necessary arrangements to limit the data stored in its devices, which was the primary source of concern.
Conclusion
We still believe that data collection by smartphone companies raises a serious question regarding data security and privacy matters. Failing to resolve the issue at the earliest could negatively impact smartphone companies.
We also believe that this data storage issue is far from over and we remain interested in the next set of measures, which might be taken by smartphone makers to deal with the information security issue in the near term.
Japan’s natural disaster fueled supply concerns for Apple’s iPad devices. Now, this data security issue will likely worsen the situation in the short term.
While these negatives are weighing on the stock, we are maintaining our Outperform rating on Apple in the long run, as it remains a heavyweight in the technology sector with its robust results, stupendous growth trajectory and the timeliness of innovative product launches, which have made it a wealth creator for investors.
The negatives might have some short-term impact on the Apple stock although the trend remains positive.
Currently, we have a Zacks #3 Rank on Apple shares, which translates into a Hold rating in the short term.
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