Industry readies for Apple iPhone release

By Colleen Taylor, Contributing Editor -- Electronic News, 6/29/2007

Following through on what has turned out to be months of hype surrounding Apple Inc.'s first foray into the mobile phone market, it is nearly certain that the iPhone's market debut this evening will be met with robust sales to a relatively small community of eager early adopters. And although the company's stock has been building up steadily in recent months to all-time highs, analysts believe the company and its new product will have to prove themselves in a big way -- especially to the United States market -- if Apple aims to be in the communications realm for keeps.

The iPhone is set to hit U.S. stores today at 6:00 p.m. local time at Apple's retail locations nationwide. All 164 Apple retail stores in the U.S. will stay open until midnight, and customers can purchase up to two iPhones on a first come, first served basis.

The iPhone is the first full-feature cell phone available in North America, where the common retort by service providers to complaints about poor service and limited features is that Americans won't pay for premium phones.

"This will be the test," said James Bruce, North America segment manager for ARM's Mobile Division, who noted that the handset won't offer streaming video available in other markets such as Korea and Japan, and beginning to roll out in the United Kingdom. He noted that compared to device capabilities around the world, options for U.S. consumers have been limited.

Whether the market is limited because of tight-fisted consumers or the service providers should be answered relatively quickly. "With the iPhone, Apple is going against the current trends in the mobile phone industry by going very upmarket," Al Delattre, the global managing director of consulting firm Accenture's electronics and high technology business practice, said. "Right now, most mobile companies are focusing on making low-cost handsets."

But, Delattre said, based on the product's positive preliminary reviews and a contingent of very devoted Apple aficionados, it is unlikely that the iPhone will hit the market with a thud. "There will be a kernel of very happy users," Delattre said. "There's been so much hype, I haven't seen a product launch with this much marketing ever."

Contrastingly, Apple's full-on marketing blitz for the iPhone is in many ways a departure from the formula that it used on the iPod. Delattre noted that Apple's market-changing iPod, which has proven to be a long-term success, made its market debut in 2001 with little fanfare. The product did not start to receive the widespread popularity it now enjoys until the iTunes music software debuted in 2003, Delattre said. In April, Apple announced that it had sold its 100 millionth iPod, making it the biggest selling digital music player of all time.

It is not only Apple that has much at stake with the iPhone's market performance—the companies that made the chips included in the handset are likely to see major positive or negative growth, especially on Wall Street, in the coming months. While Apple has not disclosed who the main component suppliers are for the iPhone, one market research firm, FBR Research, has speculated that Broadcom, Cambridge Silicon Radio (CSR), Infineon Technologies AG, Marvell Technology and Samsung Electronics have won places in the iPhone.

Based on the history of the iPod, it is safe to assume that the component suppliers stand to feel the effects of the iPhone's long-term success or failure. PortalPlayer Inc., a supplier of semiconductors, firmware and software for personal media players, took a major blow last year when Apple stopped using its chips in the iPod. Until then, PortalPlayer had derived 90 percent of its revenue from its iPod business. In June 2006, PortalPlayer announced plans to slash 45 jobs in an effort to recover from the loss.  In November, programmable graphics technology company Nvidia Corp. acquired PortalPlayer for a total purchase price of $357 million.

The iPhone, which will operate exclusively on AT&T Inc.'s wireless network, will be available in a 4GByte model costing $499 or an 8GByte model costing $599. Earlier this month, Apple upgraded the iPhone's battery capabilities and changed its screen from plastic to optical-quality glass. 

Though Apple has yet to see how the iPhone's market release will play out on a larger scale, in a way the handset has already been a major success for the company: Apple's stock has been trading at steadily higher and higher prices for months now. Shares of Apple opened at $122 this morning, more than double its opening price of $56.76 one year ago. When fuel was added to the iPhone rumors when Apple won a patent for speech recognition technology, the company's stock price opened at $81.35 on October 25, 2006. On December 4, 2006, after a popular video blogger disclosed "inside information" of the rumored iPhone, Apple's stock had an opening price of $91.88.

Then on January 9, the day that Apple's CEO Steve Jobs officially announced the impending release of the iPhone at the MacWorld conference in San Francisco the stock's closing price was $92.57. On May 18, after the iPhone was given regulatory clearance from the Federal Communications Commission, the company's stock hit a then-record high at $110.64. 


Ed Sperling contributed to this story.
For more on this topic, see the EDN guide to the Apple iPhone.