Apple Computer CEO Steve Jobs on Tuesday announced the iPod maker's long-awaited leap into the mobile phone business and renamed the company just "Apple Inc.," reflecting its increased focus on consumer electronics.
The iPhone, which will start at $499 when it launches in June, is controlled by touch, plays music, surfs the Internet and runs the Macintosh computer operating system. Jobs said it will "reinvent" wireless communications and "leapfrog" past the current generation of smart phones.
"Every once in a while a revolutionary product comes along that changes everything," he said during his keynote address at the annual Macworld Conference and Expo. "It's very fortunate if you can work on just one of these in your career. ... Apple's been very fortunate in that it's introduced a few of these."
Name change reflects shift
He said the company's name change is meant to reflect Apple's transformation from a computer manufacturer to a full-fledged consumer electronics company.
During his speech, Jobs also unveiled a TV set-top box that allows people to send video from their computers and announced the number of songs sold on its iTunes Music Store has topped 2 billion.
Apple shares jumped more than 8 percent on the announcements, while the stock of rival smart-phone makers plunged. The run on Apple stock created about $6 billion in shareholder wealth.
While Jobs noted the explosive growth of the cell phone market, it's not clear that a device as alluring as the iPhone poses a threat to mainstream handset makers due to the price, said Avi Greengart, mobile device analyst for the research firm Current Analysis.
"My initial reaction is that this product actually lives up to the extensive hype, and I'm not easily impressed," he said. "But the vast majority of phones sold cost way less than $500." Instead, the rivals most likely to face new competition from Apple's handset are makers of higher-end smart phones such as Palm Inc.
'Goes beyond smart phones'
Tim Bajarin, principal analyst with Creative Strategies, said the iPhone could revolutionize the way cell phones are designed and sold.
"This goes beyond smart phones and should be given its own category called 'brilliant' phones," he said. "Cell phones are on track to become the largest platform for digital music playback and Apple needed to make this move to help defend their iPod franchise as well as extend it beyond a dedicated music environment."
Apple currently commands about 75 percent of the market for downloaded music and portable music players. But it's expected to lose market share on both fronts as rivals introduce their own gadgets and music stores.
Jobs said Apple expects to sell 10 million iPhones in 2008, the first full year in which they'll be available. That's about 1 percent of the global market for mobile phones; 957 million were sold worldwide in 2006.
Hefty price tag
The Apple phones, which will operate exclusively on AT&T Inc.'s Cingular Wireless network, will start shipping in June. A 4-gigabyte model will cost $499, while an 8-gigabyte iPhone will be $599. While wireless carriers typically offer discounts and rebates on new devices when they agree to sign a two-year service contact, Cingular said it was unclear whether this would be the case with the iPhone.
Cingular declined to comment on its financial arrangement with Apple.
IPhone is less than a half-inch thin — less than almost any phone on the market today. It comes with a 2-megapixel digital camera built into the back, as well as a slot for headphones and a SIM card.
The phone automatically synchs the user's media — movies, music, photos — through iTunes on computers running either Mac OS X or Microsoft Corp.'s Windows. The device also synchs e-mail, Web bookmarks and nearly any type of digital content stored on a PC.
"It's just like an iPod," Jobs said, "charge and synch."
Let your fingers do the scrolling
To make a call, users can tap out the number on an onscreen keypad or scroll through their contacts and dial with a single touch.
"It works like magic," Jobs said. "It's far more accurate than any touch display ever shipped. It ignores unintended touches. It's super smart."
Apple is also introducing what it calls "visual voicemail," so users can jump to the most important messages rather than have to listen to all of them in order.
The phone supports Wi-Fi and Bluetooth wireless technology and can detect location from Global Positioning System satellites. It also can send and display e-mail and text messages. Apple is partnering with Yahoo Inc. on Web-based e-mail and Google Inc. on maps.
With a few finger taps, Jobs demonstrated how to pull up a Google Maps site and find the closest Starbucks to San Francisco's Moscone Center, where Macworld is held. He then prank-called the cafe and ordered 4,000 lattes to go before quickly hanging up.
Not so fast, Beatles fans
Jobs demonstrated the iPhone's music capabilities by playing "Lovely Rita, Meter Maid," from the Beatles' "Sergeant Peppers Lonely Hearts Club Band." The audience cheered, spurred by speculation that an announcement was imminent about a deal to sell Beatles songs on iTunes. But there was no such announcement, and Beatles songs still cannot be legally downloaded.
Also Tuesday, Jobs said Apple will begin taking orders immediately for the $299 video box called Apple TV. It will ship next month.
The gadget is designed to bridge computers and television sets so users can more easily watch their downloaded movies on a big screen. A prototype of the gadget was displayed by Jobs in September when Apple announced it would sell TV shows and movies through iTunes.
Apple TV will come with a 40-gigabyte hard drive that stores up to 50 hours of video. It features an Intel Corp. microprocessor and can handle videos, photos and music streamed from up to five computers within the wireless range.
Apple also announced Tuesday it will sell movies from Paramount, increasing its online selection from about 100 to about 250.
Meanwhile, Apple's milestone of selling more than 2 billion songs on iTunes catapults the company into the top ranks of music sellers worldwide — more than Amazon.com Inc. and behind only Wal-Mart Stores Inc., Best Buy Co. and Target Corp., Jobs said.
“We couldn’t be happier with the growth rate of iTunes,” Jobs said.
He said Apple will sell digital movies from Paramount. Apple has partnered with Disney for several months, offering about 100 movies on iTunes. With Paramount’s selection, it will have 250 movies available for downloading on the site.
With Tuesday’s launches, it remains to be seen whether the leading seller of digital music players can colonize an entirely new category of gadgets. Apple could use a megahit along the lines of its iconic iPod to divert investors’ attention from the stock options-backdating scandal that has tainted its reputation.
The backdating of stock options, which has been widespread among Silicon Valley companies, involves pegging stock options to favorable grant dates in the past to boost the recipients’ award. It isn’t necessarily illegal, but securities laws require companies to properly disclose the practice in their accounting and settle any charges that may result.
In a December filing with the Securities and Exchange Commission, Apple said Jobs was aware of, or recommended the selection of, some favorable grant dates but he neither benefited financially from them nor “appreciated the accounting implications.”
Apple shares jumped $7.10 to close at $92.57 on the Nasdaq Stock Market. The stock has traded in a 52-week range of $50.16 to $93.16.
Nearly 120 million Apple shares were traded on Tuesday, more than four times the average daily volume.
Meanwhile, shares of other smart-phone makers slid: Treo-maker Palm dropped 5.7 percent, BlackBerry's Research In Motion Ltd. lost 7.9 percent and Motorola Inc. shed 1.8 percent.