Why Resisting The FBI Is Good For Apple Stock?

  • Apple had to resist the FBI's call for it to unlock the phone of a San Bernardino terrorist.
  • The issue is less about the specific phone than the creation of a backdoor that can unlock all phones.
  • The longer Apple resists, the better for Apple stock.

Apple (NASDAQ:AAPL), as the unquestioned leader in American device technology, has found itself caught between the rock of computer security and the hard place of privacy, as the U.S. government has demanded it unlock an iPhone that belonged to one of the San Bernardino terrorists.

Republicans are generally condemning the resistance of CEO Tim Cook, and one is introducing a bill to punish Apple for its intransigence. Democrats are offering squishy support, with its Presidential candidates calling the case difficult and asking for the two sides to reach “a compromise.” Activists and other technology executives have generally sided with Apple.

At issue for the U.S. is whether the government has a right to seize private communications with a court order in a criminal case. At issue for Apple is whether it can protect the privacy of its customers. After BlackBerry (NASDAQ:BBRY) gave in to an Indian request of this type, its market share crashed.

Governments have been playing a cat-and-mouse game with the technology industry for years. The general collection of phone meta-data, revealed by former NSA researcher Edward Snowden, eventually caused Internet companies like Alphabet Inc-A (NASDAQ:GOOGL) to begin routinely encrypting data streams, and demanding that Web sites also be encrypted using the https protocol. This has led governments to focus on breaking the encryption of devices in order to gain access to suspects’ data.

Technically, Apple could create a disk that would unlock the 5c phone in question, and only that phone. But it could also create software that would let law enforcement test a phone’s passcode repeatedly, which is not the case now.

It’s less about the specific phone in this case, and more about the FBI’s demand that Apple give it a "“backdoor" tool with which to break it. Once other phones are updated to accommodate the tool, Apple’s fear is that it would cause all users to distrust iPhones.

Ironically, the tighter TouchID security of newer iPhones, like the 5S and 6 models, could be broken easily in cases like this, by copying the fingerprint of the late owner. Fingerprint evidence, unlike a password, is always subject to a court order.

So what is at issue in this case is not whether government can get into your iPhone, but how difficult the vendor might make it for government to do so. The more trouble Apple can cause, the greater privacy protection all its customers will feel they have, and the more secure its market share leadership will be, thus higher the Apple stock price will be.

From an investment standpoint, Apple really has no choice but to resist.

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