IPhone Gets Jump on Rivals With Video Chats, Screen Technology

Apple Inc.’s iPhone is outdistancing the pack of phones that use Google Inc.’s rival software, thanks to video-calling features, a sharper screen and its array of 225,000 applications, analysts said.

The iPhone 4, unveiled yesterday by Chief Executive Officer Steve Jobs, is thinner, has better resolution and adds a front- facing camera. It also sports a new type of glass and a stainless-steel band that Apple says is designed to improve network reception.

Apple is counting on the product to fend off mounting competition from Android, a smartphone operating system developed by Google Inc. The iPhone is evolving fast enough to keep competitors at bay, even if the new version lacks any major surprises, said William Kreher, an analyst at Edward Jones in St. Louis.

“They remain the technology innovation leader,” Kreher said in an interview with Bloomberg Television. “While nothing was really revolutionary in terms of the new features, I think that Apple took a nice step forward.”

Jobs, who unveiled the phone at the company’s developer conference in San Francisco, downplayed the threat from Android. The iPhone was the No. 2 smartphone in the U.S. in the first quarter, with a 28 percent share, he said, citing Nielsen Co. data. Research In Motion Ltd. ranked first, with a 35 percent share, while Android-based devices accounted for 9 percent.

Gizmodo Leak

Though many of the iPhone 4’s enhancements were expected — a prototype of the iPhone was dissected and photographed by technology blog Gizmodo.com in April — the upgrade provides Apple with some exclusive capabilities, said Shaw Wu, an analyst with Kaufman Bros. LP in San Francisco.

“The new features and software further differentiate the iPhone from competitors,” he said. Wu recommends buying the shares, which he doesn’t own.

Even so, the new abilities come with caveats. The video- calling program, called FaceTime, will be limited to Wi-Fi networks for now. That means customers won’t be able to make video calls using AT&T Inc., the exclusive U.S. wireless carrier for the iPhone. And while the phone can tap fourth-generation networks, that technology won’t be ready from AT&T until the middle of next year.

In a reminder that Apple’s new features are dependent on the reliability of wireless networks, Jobs struggled to get some new tools to work during his presentation.

Wi-Fi Disruption

The trouble stemmed from a bad Wi-Fi connection, rather than AT&T’s service. Jobs asked attendees to shut off the wireless connections on their computers and mobile hot spots because of interference, saying, “I’d like you to look around and police each other.”

Apple, based in Cupertino, California, fell $5.03, or 2 percent, to $250.94 yesterday in Nasdaq Stock Market trading. The stock has gained 19 percent this year. The day’s drop mirrored a 1.9 percent decline in the Standard & Poor’s 500 information-technology index.

When Apple’s first iPhone appeared in 2007, its touch- screen design and app-based interface shook up the market. Research In Motion and other mobile-phone makers clambered to add similar features to their devices. Since then, the industry’s rapid-fire advancements have made it harder for an upstart to catch up quickly, said Charles Golvin, an analyst at Cambridge, Massachusetts-based Forrester Research Inc.

“Apple and its competitors are steadily bringing better and better technology and software to go with it to the market,” he said. “In that environment, it’s difficult to leapfrog the competition in the same way the iPhone did when it was first introduced.”

Top Seller

The iPhone is now Apple’s top product, generating 40 percent of revenue last quarter — more than the Macintosh computer. The company has three products that work with its App Store: the iPhone, iPod Touch and iPad. All together, Apple will have sold 100 million of those devices by sometime this month.

Jobs said yesterday that there are more than 225,000 apps available. The company has paid out more than $1 billion to developers, who get a 70 percent share of the programs sold through the store, he said. Android developers, meanwhile, have only created about 50,000 apps, according to Sanford C. Bernstein & Co.

The iPhone 4 adds a camera for capturing high-definition video, as well as software that makes video chatting possible. Its so-called retina display packs four times as many pixels in the 3.5-inch screen, delivering higher-resolution text, photos and videos. New iPhone operating-system software, called iOS 4, supports features such as multitasking — the ability to run more than one application at the same time.


The iPhone 4, set to debut in the U.S. and four other countries, also is about 24 percent thinner than its predecessor, the iPhone 3GS. A 16-gigabyte model will cost $199, and a 32-gigabyte version will sell for $299.

“It will have enough razzle-dazzle,” said Gene Munster, an analyst at Piper Jaffray Cos. in Minneapolis, who attended yesterday’s gathering. He rates Apple shares “overweight” and doesn’t own them.

Apple, which has delivered a new iPhone every year since it first came out, sees the fourth-generation device as “the biggest leap” in design and functionality in three years.

An advertising system called iAd will be built into the new iPhone software, giving creators of apps a new way to make money. Software developers will get a 60 percent cut of revenue from ads placed within their apps. After eight weeks of taking orders, Apple said yesterday that it has commitments for $60 million in advertising for the second half of the year.

With iAd, Apple is less concerned about making money directly from the system, Kreher said. It’s more about making its software and mobile devices more attractive for developers — and creating one more way to distinguish itself from Google.

“They just want to cultivate a better ecosystem for developers and advertisers to be comfortable in working with them,” Kreher said. “It’s really just about getting more people on board then driving the bottom line.”