Apple unveils faster iPhone to lure business buyers

Tuesday, June 10, 2008 at 1:18am
The new, thinner iPhone will go on sale July 11. Bloomberg News

Apple Inc. Chief Executive Officer Steve Jobs on Monday delivered the first major makeover of the iPhone, unveiling a faster, cheaper handset that may help him convince business users to switch over from the BlackBerry.

Apple sank 2.2 percent in Nasdaq trading after saying carriers won't have to give the company a cut of the lucrative monthly service fees from the new third-generation phones.

Jobs is seeking to make the iPhone more mainstream, lowering the price on one model to $199 from $399 and adding programs for the business users who have made Research In Motion Ltd.'s BlackBerry the top-selling Web-surfing handset in the U.S.

“The main restriction was price, and they've taken that away,” said Hakim Kriout, an analyst at municipal bond trading and underwriting firm Grigsby & Associates in New York. “At that level, Apple can sell more iPhones, which will compensate for the loss of revenue sharing.”

Apple, based in Cupertino, Calif., fell $4.03 to $181.61 at 4 p.m. New York time on the Nasdaq Stock Market. Before yesterday, the shares had surged 56 percent after dropping to a low this year of $119.15 in February on concern an economic slowdown in the U.S. would depress sales of iPhones and iPod media players.

The new, thinner phone will go on sale in 22 countries on July 11 and run on third-generation, or 3G, wireless networks that deliver Internet content at least two times faster than the prior model, Jobs, 53, said Monday at Apple's developer conference in San Francisco.

AT&T Inc. will subsidize the cost of the handset in the U.S., where it's the exclusive iPhone carrier. Apple declined to say how much carriers are paying for each phone, except that it's more than the selling price, according to Chief Operating Officer Timothy Cook.

Customers will be required to activate the iPhone at AT&T or Apple stores to discourage the practice of “unlocking” the device for use on other networks, said Ralph de la Vega, CEO of AT&T's wireless unit.

In a regulatory filing, Apple said it won't get payments from carriers for the new phone beyond the original purchase price. The company will still get a cut of revenue from older models running on authorized networks.

“Wireless service providers are offering subsidies, so it sounds like Apple is giving up a share of the revenue in exchange for that,” David Garrity, an analyst with Dinosaur Securities Inc., said in an interview from New York.

The iPhone went on sale last June, and Apple sold 6 million before running out in May, said Jobs. The company moved 700,000 in the current quarter, which ends this month. Monday, Cook reiterated the company's goal of shipping 10 million this year, more than double the number in 2007.

Apple sold its inventory of the older models sooner than it planned, Cook said in an interview. The company decided to cut the price after finding that 56 percent of the people it surveyed said the phone was too expensive, he said.

“It wasn't that the phone didn't appeal,'' Cook said. “All of these people wanted it, but paying $399 was too much.”

The new model, which eventually will be available in 70 markets this year, has a 3.5-inch touch screen and built-in global positioning technology. The black, 8-gigabyte version will cost $199; the 16-gigabyte model, available in white or black, will sell for $299.

—Bloomberg News

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