Apple rivals dread iPhone

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Ben Ames
PC World
Tuesday, June 26, 2007; 8:32 PM

When Apple Inc. launches the iPhone on Friday, it is set to get a jump on its competitors and spark a flurry of new phone designs, regardless of how well the device actually sells.

By introducing a combined smartphone, mobile e-mail platform and MP3 music player with a touch-screen interface, Apple has sent other hardware vendors running back to their drawing boards. And the company has enjoyed positive press coverage since CEO Steve Jobs announced the iPhone in January, analysts said.

Apple is feeding the fire with strong advertising in its retail stores. On Monday, staffers at the Apple store in the Cambridgeside Galleria mall in Cambridge, Massachusetts, wore black T-shirts with the logo "the wait is almost over," printed above an image of a calendar page for Friday, June 29.

IPhone anticipation has already created a "halo effect" of increased sales for Apple's notebook and desktop PCs, an impact that is likely to increase after the launch, according to a report from ChangeWave Research LLC.

Apple posted a strong profit for the last period despite struggling with a U.S. federal investigation into executives backdating their stock options. In April, Apple beat Wall Street expectations by posting a profit of US$770 million for the second quarter, an 88 percent rise from that period last year.

Since the company has already garnered media attention and a sales boost from iPhone demand, Apple will suffer little damage even if the device is a flop in retail sales, one analyst said.

"No way Apple will seriously impact Nokia or Motorola or Samsung, who combined sell over a billion phones a year. But if Apple manages to sell several million, then that is probably pretty good for their overall business," said analyst Jack Gold, founder of the research firm J. Gold Associates. "I think the potential gold mine is in the services, not the phone hardware."

The iPhone will bring new subscribers to Apple's iTunes online music store and Apple could make more money if it decides to launch future wireless mobile products like navigation, location-based services, VOIP (voice over Internet Protocol) telephony and video streaming, Gold said.

In the meantime, Apple has already given a headache to competitors scurrying to catch up, such as Motorola Inc., Samsung Electronics Co. Ltd. and LG Electronics Inc. Even vendors with comparable products -- like Nokia Corp.'s N Series and High Tech Computer Corp.'s HTC Touch phones -- lack Apple's cachet and will have trouble competing on store shelves, he said.

In fact, some experts are warning that iPhone sales could fall short of Apple's high expectations. Their criticism includes potential user confusion about Apple's "virtual keyboard," a battery that may fade too fast and is not user-replaceable, and resistance by some corporate IT departments to the added expense and security risk of supporting mobile e-mail networks in addition to the servers they use to support Research in Motion Ltd.'s BlackBerry device.

Those drawbacks could limit the iPhone's success in the business market, said Shaw Wu, an analyst with American Technology Research.

Still, the iPhone will be popular with those who tend to use smartphones more by scrolling through menus than typing long messages, and who have made Apple's iPod music player a huge hit despite similar concerns about its battery, Wu said. Likewise, consumers will likely shrug off corporate security concerns, and use mobile e-mail systems from Google Inc. and Yahoo Inc.

In the long run, Apple will use the iPhone to beat its competitors in creating an end-to-end channel for digital media, spanning from Mac PCs to the mobile iPod music player, iTunes online store and Apple TV set-top box for sharing Internet and television video content. The only thing Apple could do to spread that net even wider would be to offer iPhone models at less than the current $499 for a 4G-byte version and $599 for 8G bytes, Wu said.


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