Apple IPhone Models Show Shift From Pioneer to Emulator

Apple IPhone Models Show Shift From Pioneer to Emulator

Apple Inc. (AAPL), the company that pioneered the era of mobile touch-based computing with the iPhone’s 2007 debut, is taking more cues from the competition. In a break with the past, when the company introduced one iPhone a year, Apple yesterday unveiled two new models. The iPhone 5C will cost $99 to $199 with a wireless contract and comes in five different colors. A high-end iPhone 5S with fingerprint-security features, a speedier processor and better camera will cost $199 to $399 and be available in three colors.The devices underscores the new normal in the $280 billion smartphone industry, as the novelty of Internet-connected handsets wears out and the gadgets share many of the same basic features. Facing increasing competition from rivals such as Samsung Electronics Co. (005930) that offer mobile phones in different styles and prices, Apple Chief Executive Officer Tim Cook is following suit and expanding his company’s own lineup.

“We’ve gotten through the first phase of the industry,” said Benedict Evans, a mobile-phone industry analyst at Enders Analysis. “The original vision has been built out. We’re now in a market where Apple is fighting on more equal terms.”

Repackaged IPhone

Apple’s strategy shift includes what is essentially a repackaging of last year’s iPhone 5 in a new polycarbonate casing that comes in blue, pink, green, yellow and white to become the iPhone 5C. The company isn’t pricing the 5C as cheaply as competitors’ handsets, with the phone costing $549 and up without a two-year contract, according to Apple’s U.S. website, showing it’s unwilling to trade its industry-leading profit margins for increased market share.

Apple fell 2.3 percent to close at $494.64 in New York after yesterday’s announcement as investors expected a lower price for the iPhone 5C to appeal to more customers in emerging markets like China.

“Nobody expected it to be this high,” said Brian Blair, an analyst at Wedge Partners Corp. who attended the Apple event. “They are clearly saying we aren’t willing to go downstream.”

Even so, Apple is boosting its pool of potential customers. Apple said it was adding Japan’s largest carrier, NTT DoCoMo Inc. (9437), and that it would have devices immediately available in China for the first time. The company is near a deal with China Mobile Ltd. (941), the world’s largest carrier, people familiar with the plans have said.

Changing Dynamics

The shift in iPhone strategy is a turnabout for Apple, which has long been the pacesetter in the smartphone market. After Apple co-founder Steve Jobs unveiled the iPhone in January 2007, he upended a market dominated by Nokia Oyj’s feature phones and BlackBerry Ltd.’s keyboard handsets.

As the iPhone gained in popularity to become a preeminent computing device for consumers — catapulting Apple’s stock to make it the world’s most valuable company — Google Inc. pushed its Android software with Samsung, HTC Corp. and other handset manufacturers who soon produced touch-screen devices.

Each iPhone unveiling is critical for Apple because the smartphone accounts for about half its revenue. Yesterday’s event was the company’s first major product debut since the iPad mini was introduced last year. Absent new gadgets, Apple’s growth has stagnated, with earnings falling last quarter.

Who’s Who

Apple is responding with the new iPhones, which debuted in front of a crowd that included Apple board member and former Vice President Al Gore, Yahoo! Inc. CEO Marissa Mayer and Twitter Inc. co-founder Jack Dorsey. Musician Elvis Costello also played toward the end of the event.

The new iPhones will hit stores on Sept. 20. The iPhone 5S will come in white, black and gold and has a 64-bit chip that the company said will make it work twice as fast as the iPhone 5. It will also have Touch ID fingerprint-sensor technology that is located on the phone’s Home button, which people can use to unlock their phone and confirm purchases from iTunes and Apple’s app store. Without a contract, the 5S costs $649 to $849, according to Apple’s online store.

The high off-contract prices indicate Apple is still betting customers will pay more for the iPhone, said Sarah Rotman Epps, an analyst at Forrester Research. “They aren’t trying to compete for the bottom of the market,” she said, adding that Apple is keeping its strategy of appealing to the “well-off masses.”

Apple also revamped its mobile software with the introduction of iOS 7, which will be available for free starting Sept. 18. The overhaul includes new sounds, picture-sharing features, and an iTunes radio feature.

At the event, the company said 700 million iOS devices would be sold by next month. Apple added that its Siri digital assistant is “massively improved” and now draws information from Twitter and Wikipedia, among other things.

More new Apple products are anticipated this year in the run-up to the holiday shopping season. The company is planning to introduce new iPads later this year, people familiar with the plans have said.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

Apple’s New IPhone: One Thumb Up

Apple Inc. (AAPL)’s latest media carnival made clear that the company still has a capacity for spectacle, self-congratulation and, in the end, no small bit of innovation.

Amid a multimedia onslaught, including an Elvis Costello performance, the company unveiled the new iPhone 5S, complete with its piece de resistance: Touch ID, a fingerprint sensor that can supplant your password and be used to make purchases from Apple’s various stores.

Even if it flops, Touch ID can still serve a useful purpose. Biometric devices are only going to become more pervasive, forcing consumers to confront a host of legal, moral and practical challenges. Better to start thinking through these issues now, while the technology is still in the gee-whiz phase, than when your bank, employer or (not least) government starts asking for a print.

As traditional passwords have grown more vulnerable, a host of biometric devices — from fingerprint readers to iris scanners — have arisen. The hope is that they could enhance both security and convenience: better protection from hacking and theft, no more forgotten passwords or onerous sign-in procedures. Investors have taken notice, other smartphone makers are likely to follow Apple’s lead, and some of the biggest names in Silicon Valley have joined a trade group that advocates wider adoption of the technology.

In the digital world, however, security and convenience are rarely complementary. Fingerprint scanners have obvious weaknesses that Touch ID will have to overcome if Apple hopes to pave the way for a new era of smartphone security.

Inherently Fallible

For starters, biometric devices are typically susceptible to degradation, fluctuations in temperature or humidity, and the vagaries of biology (the quality of your fingerprint tends to decline significantly as you age, for example). They rely on probabilities; as such they are “inherently fallible,” as a report by the Natural Research Council found. They’re not immune to counterfeiting. And they can be finicky or poorly calibrated — either so permissive they grant access to people who shouldn’t have it or so strict they block your access to your own phone.

If fingerprint scanners are eventually adapted for mobile payments, banking or cloud computing — uses that would often require a database of biometric information to verify a user — they could become as vulnerable to hacking as ordinary passwords. Worse, once a thief has your fingerprint, he always has it.

Finally, biometric data could present a privacy nightmare. It is by definition “personally identifiable,” and if there’s any lesson consumers should have internalized from the past few years, it’s that no data is truly safe once it’s collected and stored.

Apple has tried to mitigate a lot of these problems. The Touch ID sensor, the company says, is made of sapphire crystal, which not only sounds good in a marketing brochure but should also help forestall degradation. Perhaps more important, Apple says that your fingerprint data will be encrypted and stored only on your phone, not in the cloud, thus making violations of privacy or malicious intrusions more difficult.

Consumers may still hesitate, whether because they’re freaked out by divulging something so personal or they find it too cumbersome to bother with (just ask Motorola, which found out two years ago that smartphone consumers weren’t ready for fingerprint sensors). Apple’s challenge, then, is twofold: convincing wary customers that their information is safe and that a fingerprint scan is more convenient than a password.

So applaud Apple’s technological innovation and marvel at its marketing prowess. (Or decry them both; we take no position in the fanboy wars.) Just remember that it’s only the beginning, and that no security system — no matter how cool, convenient or technically advanced — is infallible.

To contact the Bloomberg View editorial board: view@bloomberg.net.

Apple Goes Slumming to Fight Google (and Microsoft)

For years, Apple has earned higher profit margins than its competitors by convincing customers that it sold products that were exclusive and cool. Those who pay up for the privilege of owning an Apple product feel like they are part of an elite organization that, somehow, anyone can join.

That has been the secret sauce that allows Apple to charge premiums of as much as 50 percent over the prices of comparable computers and phones sold by competitors, which in turn has let it earn outsized profits despite selling a relatively small number of devices.

Now, however, executives in Cupertino, California, are betting that it’s time to abandon this strategy. Competitive pressure from Google has pushed Apple to dilute its brand by offering a cheaper iPhone, known as the 5c, which will cost about half as much as the new 5s. This gambit may work, but it will not be without some long-term drawbacks. Apple has introduced a hierarchy of quality and price within the community of iPhone owners.

Apple’s mobile market share has already peaked in rich countries as consumers are now warming to the high-end smartphones and tablets made by Samsung and powered by Google’s Android operating system. In the rest of the world, Apple has aspirational appeal among the upper-middle class but is too expensive for most people. Nokia’s “dumb phones” and, to a lesser extent, cheaper Android phones made by Samsung, HTC, LG and others are all vastly more popular in India, Africa, and Latin America.

Unlike Apple’s premium phones and tablets, those products are barely profitable. However, there is some evidence that people who like their lower-end devices will upgrade to high-margin ones made by the same company. This is one explanation for why Microsoft was willing to purchase Nokia’s money-losing handset division, which was announced last week. A few billion euros is a small price to pay for what could be more than a billion potential Windows phone customers.

This also explains why companies like Samsung are willing to live with profit margins just half of what Apple earns in exchange for relentless growth in market share. They sell cheaper phones that get consumers up the ladder toward higher-end products.

Apple has long resisted this strategy, but the 30 percent decline in its market value over the past 12 months and the pressure from activists like Carl Icahn may have gotten it to change its tune. That could be good for the company’s long-term growth, but it will come with a cost that the executives in Cupertino may not fully appreciate.

(Matthew C. Klein is a writer for Bloomberg View, and owns an iPhone. Follow him on Twitter.)

Updated September 10, 2013, 8:27 p.m. ET

Apple Unveils Two iPhones

Company Continues to Fight Rivals in Smartphone Market; the 5C, in Five Colors, Is Priced at $99

IAN SHERR And GREG BENSINGER

Reuters

Apple CEO Tim Cook talked about the new products during an event Tuesday. The company has been losing market share to rivals like Samsung.

Apple Inc. AAPL -2.28% introduced a pair of new iPhones Tuesday with upgraded features, but didn’t stray far from its usual playbook to address concerns about intensifying competition from rivals such as Samsung Electronics Co.005930.SE -0.64%

The company’s new flagship iPhone, the 5S, includes a faster processor and a new fingerprint scanner, but retains the same basic form as previous models. In a first, Apple added a second model to its lineup called the 5C—priced at $99 with a service contract—that repackages much of the technology in its previous-generation iPhone 5 in a new colorful polycarbonate case. Both phones, and some of the company’s older devices, will get a free version of Apple’s redesigned iOS software.

Apple’s latest smartphone lineup, which contained few surprises, did little to directly match some of the factors that have fueled the global rise of Samsung and a bevy of handset makers usingGoogle

Inc.’s GOOG +0.07% Android software: cheaper devices and larger sizes. If Apple falls behind, it risks losing its status as a global trendsetter and ability to command higher prices.

As the world-wide market for smartphones has increased, Apple has lost market share, particularly outside the U.S. and among first-time smartphone buyers. Once the world’s top smartphone maker by unit shipments, the iPhone’s sales now account for 19% of the market, while Samsung represents nearly 32%, according to Gartner research. World-wide smartphone sales are expected to reach $290 billion this year, according to independent market analyst Chetan Sharma.

On the low end, competitors have been able to come in far below Apple’s prices. Samsung, for example, offers smartphones in China, India and Indonesia for less than $100 without a carrier subsidy. The new iPhone 5C will cost about $733 without a carrier subsidy in China and $549 in the U.S.

On the high end, Samsung has also attracted customers with varied screen sizes and increasingly more impressive features, such as a pen to draw notes, and more advanced camera systems. Apple has been testing iPhone screens up to 6 inches, according to people familiar with the matter, but it didn’t mention them at a press event Tuesday.

Executives for the Cupertino, Calif., company touted the consumer appeal of both the iPhone 5S’s new hardware and software. “This is our most forward-thinking phone yet,” said Phil Schiller, Apple’s head of world-wide marketing.

The new features still keep Apple at the forefront of smartphone design. But they leave open the question of when, and whether, Apple can be a groundbreaker. Two years after the death of its co-founder Steve Jobs, the company has yet to come out with new product categories, or even many product surprises.

Tuesday’s event put the spotlight on Tim Cook, the company’s chief executive for the last two years. Some investors lost confidence in the company last year following the embarrassingly error-filled release of Apple’s new mapping application to unseat Google’s technology.

Mr. Cook, who played the role of MC at Tuesday’s event, positioned Apple’s software as a major advantage. The company said it would be releasing its new iOS7 software, which includes a new look and features to deter thieves and more easily share files between devices, as a free upgrade to customers with some older-model iPhones and iPads on Sept. 18.

App developers have said iOS 7 is one of Apple’s most important software releases, and it will likely define the company’s success with customers for the foreseeable future.

On stage, Mr. Schiller joked about the product leaks left few surprises. “Some of you may have seen some shots on the Web, and that is cool, because people are excited,” he said.

Apple did have one software surprise up its sleeve: It is making its iWork, iPhoto and iMovie mobile productivity apps free. The move ratchets up competition withMicrosoft

Corp., MSFT +2.32% maker of the Surface tablets, in the lucrative business market.

The iPhone 5S—in luxury-styled gold, silver and dark gray—will include a fingerprint scanner technology called Touch ID that allows users to unlock their phones or make purchases from Apple’s iTunes store by touching the home button. It costs $199 for a version with 16 GB of storage with a contract.

Mr. Schiller said the cheaper 5C model marked a product strategy shift as “the first time we’re launching and rolling out two new lines of iPhones.” Mr. Schiller, the keeper of Apple’s high-end brand positioning, avoided calling the iPhone cheap or inexpensive, and didn’t say what the “C” stood for. Apple’s website offered a possible hint, saying the 5C is “for the colorful.”

The iPhone 5C is effectively last year’s iPhone with a larger battery and an array of new plastic casings, instead of the aluminum casings of its predecessor. The 5C will come in five colors—green, white, blue, pink and yellow—and have a 4-inch display. Its price, $99 under a two-year contract, is the same Apple typically charges for a year-old model.

Apple said it would begin taking preorders for the iPhone 5C on Sept. 13, and begin selling both it and the iPhone 5S on Sept. 20 in various countries including the U.S., the U.K. and, for a first time at launch, China.

Among the technology improvements in the iPhone 5S are Apple’s new 64-bit A7 processor, which the company says has up to twice the performance of previous models.

It also features an 8-megapixel camera that can take 10 frames a second in “burst” mode, and a new chip to capture movements as customers carry the phone around to help with fitness tracking, among other uses.

Apple’s shares fell 2.3% to $494.64 in regular trading on the Nasdaq Stock Market.

Brian Marshall, an analyst at ISI Group, said the iPhone 5C looked compelling, but he questioned whether Apple will be able to get the price low enough to make it attractive, while also moving the needle for Apple’s closely watched gross margins, which have fallen in recent years to about 37% in its most recently reported quarter ended in June.

“The iPhone 5C is a legitimate smartphone, so the question is how low cost is it?” he said, adding he estimates the phone needs to be about $350 to entice customers.