June 4, 2010 / 12:57 AM / 8 years ago

New Apple iPhone on tap but may fail to dazzle

SAN FRANCISCO (Reuters) - Apple Inc’s next-generation iPhone, which CEO Steve Jobs is widely expected to unveil on Monday, will have to really set new standards in multimedia content and function to wow Wall Street and consumers.

Apple’s challenge may be to dream up game-changing innovations, since the iPhone is already an unqualified blockbuster that is the company’s main profit growth driver, and its share price hovers near record highs. The bid is made tougher with the early success of the iPad tablet computer, which many say has already created a new market.

Competition from a host of well-received smartphones based on Google Inc’s Android operating system is also growing, pressuring Apple to raise the bar even higher.

The “iPhone 4.0 will keep them ahead of the game. Is it as easy as last year to stay ahead? No. I think Android has made huge progress,” said Gartner analyst Carolina Milanesi.

Only last year, Research in Motion Ltd was seen as Apple’s top rival. While the company’s Blackberry remains the smartphone of choice for many corporations, Apple has made strides in that market as security concerns addressed by the Blackberry have eased.

More than 70 percent of Fortune 100 companies have deployed or piloted the iPhone, according to Apple.

But the iPhone’s prime target -- for now -- remains the consumer, in a market where it increasingly goes head-to-head with Android phones from vendors like HTC, Motorola Inc and Samsung Electronics.

Longer-term, investors are squarely focused on the iPhone’s spread into international markets including China, Apple’s pricing strategy, and when the device will be available through another U.S. carrier besides AT&T.

Jobs takes the stage at Apple’s developers conference in San Francisco on Monday following a hectic public schedule of late, where Wall Street is expecting to get its first formal look at the fourth-generation iPhone.

The phone will likely be faster, have more capacity, a better screen and battery life, and a front-facing camera -- all nice additions, but none of which move the competitive needle very much.

“There will be some pretty cool things on stage with Steve, but at the end of the day we know the general functionality,” said Broadpoint AmTech analyst Brian Marshall.

Some features that iPhone users have long clamored for, such as multi-tasking, will also be added.

GROWING COMPETITION

The iPhone, introduced in 2007, arguably created the modern smartphone industry. The template pioneered by the iPhone -- a roughly 4-inch slab with a touchscreen interface offering quick access to thousands of applications -- has become the standard for Web-surfing handsets.

But the market has since grown thick with competitors, particularly slick smartphones based on Android.

“Android is the only real contender to the throne,” said Rodman & Renshaw analyst Ashok Kumar.

“Nokia’s position continues to fade, RIM has yet to make traction on the consumer side, and Microsoft could end up being too little, too late.”

Nokia’s Symbian mobile operating system is the global market leader and RIM’s platform is No. 2, but both are losing market share, according to Gartner data.

The iPhone’s global share surged to more than 15 percent in the first quarter, making it No. 3. Android was No. 4 with close to 10 percent of the market, a huge increase from the previous year and gaining, Gartner data show.

Milanesi said the iPhone has done well internationally, particularly in Europe, but still has plenty of room to grow in Asia, where competition is fierce and smartphone preferences can vary widely from market to market.

The iPhone is available in around 90 countries and on more than 150 carriers. Apple sold a record 8.75 million iPhones in its latest quarter. That accounted for 40 percent of revenue, with margins estimated at roughly 60 percent.

Many on Wall Street expect the iPhone to arrive at Verizon no later than 2011, and perhaps as early as this fall. Apple is not expected to announce a Verizon iPhone on Monday.

AT&T has come under withering criticism from iPhone users over its network quality, although Jobs said this week he expects to see improvement this summer.

AT&T said Wednesday it will stop offering an unlimited pricing plan for new subscribers to its mobile data services, which could help improve the speed of its network in some areas by cutting down on network-clogging downloads.

Piper Jaffray analyst Christopher Larsen said the timing of that announcement, days before Apple’s event, was no coincidence. It could help the carrier keep its exclusive iPhone deal for longer.

How Apple chooses to price its newest iPhone, as well as the older models, will be closely watched, given Apple’s enviable margin profile. The latest model iPhone, the 3GS, starts at $199 with an AT&T subsidy, with the older model 3G priced at $99.

Many doubt there will be any surprise announcements on Monday, but with Apple one never knows. The rumors include a Web-based version of iTunes, and a new version of Apple TV.

Editing by Edwin Chan and Richard Chang

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