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Analysts: Apple's Next Move Likely To Be an iPod Phone

Posted by iNext - 2006-03-31

As Apple prepares to head into its 30th year, analysts and fans alike are predicting that the company's next move will be to introduce an iPhone, a handset that would offer mobile-phone capabilities plus all of the functionality associated with the iPod. 
"Frankly, I would say there is a very good chance that Apple will come out with a handset," said Mukul Krishna, an analyst at Frost & Sullivan. "Right now, Apple is testing the market, putting its toes in the water, and checking out the feasibility."

Although rumors have circulated for years that the company would develop its own handset, Apple watchers now say they are almost certain there will be a mobile phone in Apple's near future.

Rumor Mill

In recent weeks, speculation about the rumored iPhone was fueled by a Piper Jaffray buy recommendation in which the financial services firm said there is a strong chance of an Apple-branded phone.

"We believe Apple will benefit from the new Intel-based Macs, along with what we estimate to be a 75 percent chance of an iPhone in the next 12 months," wrote Gene Munster, a Piper Jaffray analyst, in a research note to clients.

"An iPod with phone functions" is definitely in the works according to Johnny Chan, a Hong Kong-based J.P. Morgan analyst who said Apple could use Taiwanese electronic manufacturer Hon Hai Precision to build the device.

Bill Shope, another J.P. Morgan analyst, told Barron's Online that "the chatter about the product is all over the food chain." Shope believes that Apple will unveil the handset during the fourth quarter.

One reason analysts offer for Apple's foray into the phone market is the less-than-stellar performance of the Rokr, an iTunes-ready Motorola phone that failed to impress consumers and, as a result, suffered poor sales.

Apple Simplicity

The challenge for Apple now, according to Krishna, is to develop a compelling device that not only maintains the simplicity for which the iPod is known but also features the functionality users have come to expect from next-generation phones. At the same time, said Krishna, Apple must be careful not to cannibalize iPod sales.

Krishna said to expect a device that has much less storage capacity than an iPod. Unlike the Rokr, upon which Apple imposed a 100-song limit, the iPhone most likely will have the same storage capacity of the 512-MB iPod Shuffle, he opined.

"The iPod Shuffle is very popular, and if there is any product they will cannibalize it will be the 512-MB shuffle, not the 1-GB Shuffle," Krishna said. "Then they can just phase that one out."

As with any product, there are a lot of issues the company will have to address, from supply-chain dynamics and marketing strategies to cellular capabilities. For instance, will the iPhone use CDMA or GSM wireless technology?

"If Apple decides to use GSM, what if a user wants to switch to a service provider that uses CDMA?" Krishna asked. "Then the user has a device that is not operable. That's basically where you start getting into problems."

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