IE 11 is not supported. For an optimal experience visit our site on another browser.

Apple's iPhone stirs up would-be rivals

The iPhone got everybody talking when it arrived on the wireless communications scene. Would-be rivals are welcoming the challenge but questioning Apple's claim that the iPhone is "revolutionary."
Pablo Gonzalez holds up his $1,000 touch-screen O2 cell phone at his office in Fremont, Calif., Jan. 31.  He's ready to ditch his O2 for the iPhone when it becomes available in June.Paul Sakuma / AP
/ Source: The Associated Press

Pablo Gonzalez, a Prada shoe-wearing cell phone connoisseur who jumps from one new handset to the next, is ready to ditch his $1,000 touch-screen cell phone for Apple's iPhone when it becomes available in June.

Tark Abed, on the other hand, just got the new Samsung BlackJack smart phone a month ago. The industrial designer at Palo Alto-based Speck Design isn't keen on spending $500 even though he finds the iPhone's sleek interface alluring and innovative.

"I upgraded to an unlimited data plan and got the BlackJack for $149," he said, "and that's a lot of phone already for $149."

Their divergent views underscore why Apple Inc.'s much-hyped seminal cell phone is all the rage and why, at the same time, incumbent rivals are stirred but say they are not shaken.

The iPhone got everybody — from techie bloggers to late-night TV hosts — talking when it arrived fashionably late on the wireless communications scene. Would-be rivals are welcoming the challenge but questioning Apple's claim that the iPhone is "revolutionary."

Apple's competitors predict that even as the gadget will likely boost the company's fortunes, it will have limited market share and fall short of the successes Apple has seen with its iPod portable music player. They contend some of the phone's much-touted features — such as its touch screen, movement sensors and music player — are not innovative or new.

"They're just jumping into the party where everyone else is," said Peter Skarzynski, a senior vice president at Samsung Electronics Co.'s telecommunications unit in North America.

Apple is getting in at a time when competition in the cell phone business is, as ThinkEquity Partners analyst Jonathan Hoopes puts it, "as hot as Hades."

Because nearly everyone already has a wireless device of some sort, the success of the iPhone will depend on whether Apple's notoriously slick marketing machine can persuade consumers to replace their current phones with an iPhone that costs $500 or more. In some cases they'll have to switch carriers as Apple's gadgets will work only through Cingular Wireless.

"This is not just as easy as going out to buy an iPod," Hoopes said.

The cell phone market is crowded, yet still growing, and its biggest players are looking for ways to squeeze more profits from declining prices and ever-fickle consumer tastes.

One of the brightest growth spots for the industry has been in cell phones that function as do-it-all devices capable of not only voice communications, but also data, such as Web-browsing and e-mail.

It is precisely this category called smart phones that Apple is targeting with the iPhone, which triples as a phone, a music player and a mobile Internet device.

Sales of smart phones in North America are estimated to grow from 11 million units in 2007 to 55 million in 2010, according to market research firm Gartner Inc. Worldwide unit sales are projected to nearly quadruple, from 122 million in 2007 to 450 million in 2010.

Nokia Corp. Chief Executive Olli-Pekka Kallasvuo told analysts last week that he doesn't think Nokia, the world's No. 1 handset maker, needs to change its business approach because of the iPhone.

But Apple's entry "will stimulate this market, it's very clear," he said. "The fact that we will see multipurpose devices from many manufacturers, I think it will be good for the industry. And in that way, I very much welcome (Apple to the market)."

Handset makers, which already face cutthroat design and pricing battles among themselves, will be watching as well. Samsung, the third-largest cell phone maker, is paying particular attention to effects on its line of mid- to high-end phones.

"It'll definitely impact us, but how much, it'll depend," said Dong Jin Oh, president and CEO of the American unit of Samsung.

Samsung and its rivals were just as curious as everyone else Jan. 9 when Apple, after more than two years of rumors and development, finally delivered on the hype.

Nokia employees watched online demonstrations of the iPhone from their trade show booth at the International Consumer Electronics Show in Las Vegas.

Padmasree Warrior, chief technology officer for No. 2 handset maker Motorola Inc., posted a "morning after" blog saying she'd always been a fan of Apple's creativity. She called the iPhone a "compelling concept," but she also outlined its potential shortcomings.

"There is nothing revolutionary or disruptive about any of the technologies," she wrote.

Future foe
With the iPhone still months away from the market, no one knows all its features or how well it functions in real life.

Any criticisms leveled now — the high price, the exclusive distribution through Cingular Wireless, the choice to use the slower 2.5G data network, the apparent lack of support for Microsoft Corp.'s business e-mail programs, the lack of a traditional QWERTY button keyboard — could become moot or insignificant later.

If the incumbents are nervous, they're not saying it.

"The iPhone appears to be aimed at consumers; Palm targets prosumers and business customers who require a rich e-mail experience," said Marlene Somsak, a spokeswoman for Palm Inc., maker of Treo smart phones. And those customers also need a full keyboard, she said; typing on the iPhone is done by finger taps on the 3.5-inch touch-screen instead of regular buttons.

The Treo was among the smart phone models Apple Chief Executive Steve Jobs portrayed as clunky to use and "not so smart" during his inaugural demonstration of the iPhone.

Samsung knows consumer tastes for cell phones are diverse. In any given year, Samsung has 30 or more models distributed through multiple carriers in the United States and more than 100 worldwide. "One size doesn't fit all," Skarzynski said. "One look doesn't fit all."

But analysts say cell phone makers should still be concerned about Apple making inroads into their territory.

"There is now clearly an extremely savvy marketing competitor with a huge user base," Hoopes said. "They better be nervous. But they are all trying to feign complacency."