Apple unlikely to steal plum position

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As the initial glow around Apple's iPhone fades, some analysts are questioning whether the new fangled mobile phone, music player and web-browsing device represents a truly existential threat to smart-phonemakers.

Shares in companies such as Research in Motion, maker of the BlackBerry, and Palm, maker of the Treo smart-phone, plunged after the iPhone launch, signalling that many investors believe such devices will have a hard time competing with Apple's sleek new gadget.

But Richard Windsor, who analyses the smart-phone market for Nomura Securities in London, takes a more sanguine view of the established players' prospects.

"We don't think it's going to touch BlackBerry from Research in Motion," he says, noting that the iPhone's price tag probably includes a subsidy from Cingular, the mobile operator that has teamed up with Apple on the device.

"At $499 including subsidy, the iPhone is only going to affect the very top of the smart-phone market," Mr Windsor says. "From an American consumer's perspective, if a guy goes into a mobile phone shop and signs up for a two year contract, he expects the mobile phone for free."

Vivek Arya, an analyst at Merrill Lynch, agrees that the sell-off in RIM shares was overdone. "The iPhone has a strong multimedia suite that will appeal to consumers, but we believe RIM's BlackBerry smart-phones with hardware keyboards have superior messaging features targeted at [business]."

Mr Arya says the iPhone's multimedia capabilities could be a bigger threat to Palm, which could come under pressure to develop new features that match the iPhone's ease of use.

Stuart Jeffrey at Lehman Brothers agrees. "Palm's traditional strengths in the smart-phone market have been the company's ability to design innovative, user-friendly devices," he says. With Apple's iPhone setting a new standard for style, user interface and the ability to play music, Palm could be exposed, he says.

One potential hurdle to the iPhone achieving blockbuster status is that many of its most innovative features - such as its unique touch-screen controls - rely on the fact that it can run fully fledged Apple software. That means it could be difficult to develop cheaper, stripped-down models that would be within reach of a wider audience.

Early iPod models were also on the expensive side. Although early versions of the music player were popular among enthusiasts, iPod sales did not truly begin to surge until after Apple came out with a series of iPods at different prices. Today, consumers can pick up an iPod shuffle for as little as $79.

Mr Windsor says that is unlikely to happen with the iPhone. "You have to ask, what is it? Basically, it's a Macintosh," he says, adding that the unsubsidised cost of the device could be as high as $800. "If Apple wants to bring the price down, it is going to have to re-engineer the operating system," Mr Windsor says.

Other, more pedestrian concerns could limit the iPhone's appeal. Customers may not like the fact that they will be forced to regularly clean their iPhones to ensure they are free of face grease and makeup, for example.

The iPhone's touch-based interface may be an issue for some. Many customers seem to enjoy the "tactile feedback" they receive when typing on a traditional keypad. Whether the iPhone's ease of use will be enough to make up for the lack of sensation when typing on its touch-sensitive screen remains to be seen.

A lack of compatibility with Windows-based "push" e-mail services - programs that send e-mail messages from desktop computers to wireless devices - could limit the iPhone's appeal to business users. Apple's phone will feature free web-based push e-mail through Yahoo, but that is unlikely to make a big difference to potential iPhone users, says Mr Jeffrey of Lehman.

Steve Jobs, Apple's co-founder and chief executive, seems to be betting that the iPhone will transform the smart-phone market, rather than simply add to it.

He said on Tuesday Apple hoped to sell 10m iPhones by next year, the equivalent of a 1 per cent market share of the global handset market.

The potential revenue gains could be huge. Richard Farmer at Merrill Lynch estimates that for every point of market share it gains, Apple stands to take in $6.5bn in sales from the iPhone. That would translate to earnings per share of 75 cents per basis point of market share, according to his estimates.

Regardless of whether Apple's market share goals are met, the iPhone's innovative features are likely to create a stir among handheld device makers, says Paul Smith, a consultant at Bain & Co.

"The iPhone is going to create disruption in the marketplace," he says. But "my CIO isn't going to want to buy me one, certainly not at this price".

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