Shares of Apple (NASDAQ:AAPL) have traded slightly higher in the opening half hour of trading, the day after the US government dropped its case against the tech company. The government no longer needed to pursue the case after the FBI revealed it had successfully hacked the iPhone of one of the San Bernardino gunmen.
The dismissal of the court case is a hollow victory for Apple given that its prize product has been shown to be vulnerable.
The modern smartphone user should know that his or her data is at risk online. Prior to this announcement there was always a sense that, as long as it was locked, at least the iPhone was secure in of itself. Ten wrong passwords and all the data is gone, but not anymore.
Reputational damage
Software always has security flaws and Apple, like any software company, releases updates for its iOS operating system. The company’s PR machine is already suggesting the hack may not have been possible with later iPhone models. Apple will likely fill-in the security hole but fixing the reputational damage could take longer.
Silicon Valley companies have been trying to win back foreign government support after the Edward Snowden affair damaged the USA’s reputation for privacy. The FBI admitting to hacking (something individuals have gone to jail for) could easily be seen as overreach by the US government.
This latest manoeuvre by US law enforcement will likely set the biggest US-based companies back again in the eyes of security-conscious foreign governments. Even if Apple did not officially comply, there will be suspicions in some quarters that Apple came to a private agreement with the Department of Justice.
Opportunity for Blackberry (TO:BB)
Realistically, individual iPhone users won’t be deterred by the FBI’s hack.
User indifference is in a sense justified. WikiLeaks has revealed that Google (NASDAQ:GOOGL) (now Alphabet) may have been assisting the US government in overthrowing the Syrian government and Microsoft (NASDAQ:MSFT) Chairman Bill Gates implied support for the FBI in the case. Both Google and Microsoft still appear more likely to hand over private data to the government than Apple.
It will be the corporate customers ringing the alarm bell if enterprise data could be compromised via iPhones. Information is power and corporations won’t want valuable data finding its way to competitors via lost iPhones.
Apple has been making great strides in the enterprise space after partnering with IBM (NYSE:IBM) and concern of one or more vulnerabilities on the iPhone could undermine that.
Shares of Blackberry (formerly RIM) have taken another leg lower over the past eighteen months, in part because of heightened competition in the enterprise market. The open-source nature of Google’s Android operating system makes it inherently less secure for enterprise customers and the unpopular Windows-enabled mobile devices means Microsoft is an unlikely alternative to Apple. If the government hack frightens off Apple’s new corporate customers, it’ll likely be Blackberry they go running to.
18-month chart of Apple, Google, Microsoft and Blackberry shares
The chart above shows Blackberry underperforming the other major developers of mobile operating systems in the last year and-a-half. This underperformance may be about to end if Blackberry can use this hack of an iPhone to underline its prowess in smartphone security.
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