Apple Introduces 3G IPhone

United States Article

SAN FRANCISCO -(Dow Jones)- Apple Inc. (AAPL) on Monday introduced its long- awaited 3G iPhone for $199, which will be available starting July 11 along with its iPhone software store, in a move demonstrating how central Apple's iPhone is to the computer maker's future.

The new iPhone and the steep price cut was the most eagerly anticipated of the developments Apple Chief Executive Steve Jobs revealed Monday during an address to a gathering of Apple developers. The new version is also slightly thinner than the older model and contains a global positioning service. Apple intends to sell the device in 70 countries over the next few months.

A 3G version of the iPhone with 8 GB of memory costs $199, while one with double the memory costs $299. Earlier versions of iPhones cost $399 and $499, depending on memory size. Some stores are still selling the older version but supplies are dwindling. Meanwhile, the older iPhone is no longer being sold through Apple's online store.

Apple also has dramatically changed the way it is selling the iPhone, and the revenue it gets for doing so. Apple is no longer receiving a cut of fees that carriers charge, as it once did. Rather, it's only getting some or all of the initial phone purchase price.

"This lets us scale faster," Philip Schiller, Apple senior vice president, said in an interview. "And it lets us have really aggressive pricing."

The changes, especially the price cuts, have excited some analysts.

"The 12 million iPhones Apple should sell this year now looks like a lay-up," said Gene Munster, analyst with Piper Jaffray. "We're much more comfortable now projecting Apple will sell 45 million next year."

The 3G iPhone is considered key for Apple to gain share in Asian and European nations where wireless networks that deliver Internet access at wired broadband speeds are much more in demand. The new device, in tandem with the new iPhone software sales that Jobs also introduced Monday, is also expected to drive more business from enterprises, an area Apple has been historically weak in, and thus potentially help Apple take some share away from BlackBerry smartphone maker Research In Motion Ltd. (RIMM) and No. 1 handset maker Nokia Corp. (NOK).

So far, there have been 6 million iPhones sold, Jobs said.

According to details Apple has made available so far, the iPhone will be thinner by about an eighth-inch and has a black or white case. But the most important improvement is that the phone is now compatible with cellular networks that can deliver Internet access at speeds rivaling a wireline connection.

Almost all of Apple's moves Monday involved the iPhone in some way, from the new version being released to a revamp of its Web-hosting business to tailor to iPhones. The core role the iPhone is playing in the new products services and Apple's plans for the year speak to how the device has quickly become just as important to Apple as its Macintosh computer line-up and iTunes online store. Sales of iPhones dwarf those of Macintoshes, so Apple's bottom and top lines are still largely driven by computer sales. But by staking so much of its immediate future on the iPhone, as Jobs outlined, it's clear the emphasis at the computer company has shifted more toward using the iPhone as a lynchpin to most of its sales.

Despite record-setting sales of the iPhone since its introduction a year ago, Gartner analyst Ken Dulaney doesn't see Apple's new 3G phone taking much share from the BlackBerry. Rather, in Europe especially, Apple is likely to pick up share from phones that use the Symbian smartphone operating system, which is distributed by Symbian Ltd., a partnership involving various cellphone handset makers that is chiefly owned by Nokia.

Apple's moves also showed how much its original business model for the iPhone has shifted, which analysts have been demanding and say is important for Apple to reach its goal of selling 10 million iPhones this year.

Apple also plans to open up its iPhone software store on July 11, which will be stocked by programs created by third parties that have agreed to have their software distributed through Apple's iTunes online store, and share some of the profits on any sales with Apple.

The store is an important development given iPhone software add-ons, the calendaring features, games and other programs that are available in the long run generate more dollars for Apple than actual iPhone sales, according to some estimates. For every iPhone sold, it's been suggested Apple gets about $100 from the upfront payment costs, and then another $200 over the life of the phone in the form of cellphone data subscriptions and other service fees some carriers have agreed to share with Apple.

The store also helps Apple catch up, in one way, to its rivals. RIM and Nokia already have thriving developer communities and a variety of online areas to buy their goods. As many as 1,000 applications are expected right off the bat.

Apple also said it's trying to revitalize its .Mac online Web-hosting service, which once cost $99 a year, with one tailored to the iPhone and called "Mobile Me" that costs $50 and makes use of technology Apple has licensed from Microsoft Corp. (MSFT) to allow iPhones to send and receive emails or otherwise synchronize with corporate or home computer networks.

Apple shares closed down $4.03, or 2.2%, at $181.61. They were up 15 cents in late trading.

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Posted on Tuesday, June 10, 2008 (Archive on Tuesday, June 17, 2008)
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