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Apple drops a bombshell with iPhone

By Kevin Voigt
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(CNN) -- With CEO Steven Jobs' recent introduction of the long-rumored iPhone, the stock price of the newly christened Apple Inc. ("Computer" was dropped from name) jumped 6 percent.

Stocks for cell-phone behemoths such as Nokia, LG Electronics, Motorola, Palm and Blackberry's Research In Motion immediately slid in value. Legions of Mac fans flooded blogs about the device, electronic pundits who reviewed prototypes of the phone drooled, and Cisco Systems launched a lawsuit claiming Apple stole the "iPhone" name.

All this the result of a product that has yet to sell a single unit: iPhone won't be available to U.S. consumers until June, and at least a year away for sale in the bustling mobile-phone markets of Asia.

So is this iPhone hoopla only evidence of Apple's public-relations panache, or does it signal a seismic shift in the mobile-communications market?

Both, analysts say.

Jobs artfully timed the MacWorld announcement to coincide with the Consumer Electronics Show in Las Vegas to steal media thunder from products launched there -- with great success.

The New York Times gadget guru David Pogue was breathless in his review of the new phone, which includes an innovative touch-sensitive screen that virtually eliminates buttons and a direct interface he compared to something out of Steven Spielberg's science-fiction thriller "Minority Report" -- the ability for users to physically manipulate the size of images by pinching fingers to maximize or minimize size of Web pages or photographs.

Scrolling through the virtual rack of CDs mimics the speed of the finger -- the faster you flick, the faster album selections whiz past. The Wall Street Journal's Walter Mossberg, who played with a prototype for an hour, wrote, "It has the largest and most beautiful screen I've ever seen on a cell phone, even though it's incredibly thin. ... It has a brilliant new user interface; the handsomest email program and Web browser I've ever seen on a phone; a full-blown iPod music and video player built in; and even a cool new voicemail system."

But the success of Apple's entry into the mobile phone market is far from written -- the phone is expensive, ranging from $499 to $599, depending on memory-storage capability. In the United States, iPhone has an exclusivity agreement with Cingular mobile-phone networks; new buyers must sign a two-year commitment to Cingular to purchase the phone.

" What's not important is if Apple sells a lot of phones ... what's important is how the rest of the market will react to it." - Sascha Segan, PC Magazine

Although by subscriber, Cingular is the largest operator in the States, it doesn't have a large presence in large markets like New York City, where Verizon is the top operator.

"Cingular executives I've spoken with say they anticipate people will change (mobile phone) carriers so they can buy an iPhone -- I doubt that," says Sascha Segan, chief mobile phone analyst for PC Magazine. "People choose call carriers on (cell-phone) coverage, call quality and price -- not device."

Also Segan wonders if North American users will give up phone keypads for touch screens. "Americans like the tactile feel of making a phone call, although touch screens are more popular and accepted in Asia," he says.

"In a way, what's not important is if Apple sells a lot of phones ... what's important is how the rest of the market will react to it," he says. "For years, it's been a huge problem of how to create a multimedia phone that is popular with users ... with (iPhone's) radical new interface that may be the solution to the problem. If so, you're going to see every other manufacturer try to copy it."

Apple Inc., which turned 30 last year, has long been in and out of favor as a trendsetter and a cautionary tale in the digital industry. The company practically created the personal-home-computer industry, but the company made the fateful decision not to liberally license its software applications -- as once suggested by a young software engineer named Bill Gates -- and as a result found itself marginalized in a Windows-dominated world.

Everything changed with the introduction of the iPod. Before the wildly popular music player hit the market in 2001, Apple's stock was $7.44 a share -- now it hovers close to $90.

"The question with iPhone is whether it will become like its line of computers --critically acclaimed, but really only attracting a niche market -- or will it raise the bar and create something new, like the iPod mp3 player, which changed the market," says Thomas Husson, lead mobile-phone analyst for Jupiter Research in Europe, where the iPhone is expected to be released toward the end of this year.

Jobs said Apple plans to sell 10 million units by end of 2008. While several analysts note this is a relatively paltry global-market share -- only 1 percent of total sales -- Husson says it is still an ambitious goal for a top-flight smart phone. "Nokia's N-series of smart phones sold 10 million from April 2005 to September 2006, and that was with a pretty broad range of phones," he says.

"The iPhone is not going to be a Blackberry killer, it doesn't have the traditional corporate (personal data assistant) slant to it," adds Segan. "In North America, essentially Apple is trying to create a completely new market -- the high-end media phone subscriber ... such phones have caught on more in Europe and Asia, but it remains to be seen if it can happen here."


Analysts are not sure whether the iPhone can succeed in creating a new market.



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