(AAPL) Hackers to Target Apple Devices?

German authorities have identified potential security flaws in Apple Inc.’s (AAPL) devices such as iPhone, iPad and iPod that are feared to be vulnerable to cyber attacks. According to reports from the Associated Press, German security agencies cautioned that the security hole may be exploited by hackers to steal confidential data from the devices.

Germany’s Federal Office for Information Security is of the opinion that hackers can infect Apple devices by sending malicious emails in the form of Portable Document Formats (PDF). Thereafter, once the unaware users are deceived to open the PDFs, the hackers will get accessibility to the administrative rights of the devices.

In such a case, hackers have the access to steal or use confidential information such as passwords, online-banking data, calendars, e-mails and intercept telephone conversations and the location of the user.

Meanwhile, Apple commented that the security issue will be resolved as it is in the process of plugging the loophole in its security by an upcoming software upgrade, which will be available for its iPhone, iPad and iPod touch devices.

Incidentally, this German agency had found another flaw in Apple software last year. That time, Apple had successfully fixed the issue with a software patch.

So far, however, it has been noticed that these attacks on smartphones and other handheld Internet gadgets has been rare. Hackers have been much more focused on PCs. However, we believe that with the growing use of smartphones and other Internet gadgets, as well as the growing ecommerce on these devices, hacking attacks will no doubt increase.

In the present day scenario, users seem to put down every bit of information in the smartphones, ranging from bank account numbers, social security numbers, as well as passwords to access other varied and important data.

We therefore believe that smartphone makers should be more careful while securing the devices as its vulnerability will have a profound impact on its user.

Looking Back at High Profile Hacking Incidents

Cyber security has emerged as the most discussed topic in the technology market over the last few months. As corporations, government agencies, banks and video game companies have been plagued by cyber attacks, online security has become a major concern for all.

However, the last few months have been particularly embarrassing for cyber security providers such as EMC Corp. (EMC), after some high-profile hacking was reported at Sony Corp. (SNE), EMC’s own RSA division, defense contractor Lockheed Martin Corp. (LMT), banker Citigroup Inc. (C), search company Google Inc. (GOOG), video game companies Electronic Arts Inc. (ERTS) and Sega Sammy Holdings Inc.

Moreover, government agencies like the IMF and CIA were also targeted. The Oak Ridge National Laboratory, which works closely with the U.S. Energy Department, also fell prey to cyber attack. In February 2011, France’s finance ministry suffered a cyber attack, aimed at stealing files on the G-20 summit in Paris.

Amid the growing number of cyber attacks, corporations and companies both in the private and public sector are looking for stricter and more stringent cyber security measures to plug the loopholes in the system.

For detailed report, read: Security — Top Priority in 2011

Recommendation

Apple is a great company with a loyal customer base, international expansion, competitive pricing strategy and a solid cash position. We remain positive on Apple’s long-term growth. However, increasing competition in most of its major product segments, possible delays in product launch, higher operating expenses and increasing legal complexities compel us to maintain our Neutral rating over the long term (6-12 months).

Of late, Apple has been in a spot with all the legal battles pertaining to patent rights with HTC, Eastman Kodak Co. (EK), Samsung and Amazon.com Inc. (AMZN). Moreover, Apple has settled the patent dispute with Nokia Corp. (NOK), but will have to make a one-time payment to the latter and is to pay regular royalties going forward. Financial details were not divulged.

More importantly, Apple has received unfavorable verdicts in a couple of cases at the International Trade Commission (ITC). As ITC has the authority to block import of products that infringe U.S patents, the lawsuits could cause a dent in Apple’s very sizeable cash balance. It may have to pay a hefty fine or a recurring license fee, which will hurt its profitability going forward.

Currently, Apple has a Zacks #3 Rank, which implies a Hold rating in the near term.

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