iPhone signals Apple evolution

Many wonder if the company can reinvent itself as a force in consumer electronics.

Apple Chief Executive Steve Jobs made a big splash by jumping into the wireless communications business with iPhone, a touch-screen device that plays music, surfs the Internet and delivers voice mail and e-mail differently than any other cell phone.

But it remains to be seen whether the $500 gadget and other products announced Tuesday will allow the company to remain a Wall Street darling and sustain the market dominance enjoyed by iPod, Apple's iconic digital music player. Some industry veterans wonder whether the phone — despite its slim elegance and wide-screen display — is priced competitively.

Reflecting the company's new emphasis on phones, TV devices and the iPod music player lineup, the company announced Tuesday that it would strip the word "computer" from its name — from Apple Computer Inc. to simply Apple Inc.

But business experts worry that Apple — a Silicon Valley institution that began selling desktop computers in the 1970s — will struggle with the herculean task of reinventing itself as a full-fledged consumer electronics retailer.

"Prospects for the new device are positive, but it is not a given that Apple can win against a slew of wireless providers, phone manufacturers and Microsoft, all of whom are similarly motivated to raise their flag on the same territory," said James L. McQuivey, a communications technology professor at Boston University.

Even the phone's name is in contention.

Linksys, a division of Cisco Systems Inc. that makes networking equipment for the home and small businesses, unveiled the new iPhone line of Internet-enabled phones last month. Cisco has owned the trademark on the name "iPhone" since 2000. Although Cisco is agitating for Apple to make a public statement clarifying use of the name, Apple executives say their cellular phone doesn't compete with Cisco's Internet phone.

Despite that uncertainty — and despite the fact that Apple's phone won't be available until June — Wall Street has initially blessed it. Apple shares jumped $7.10 to close at $92.57 on the Nasdaq Stock Market, creating about $6 billion in new shareholder wealth. The stock has traded in a 52-week range of $50.16 to $93.16.

Nearly 120 million Apple shares changed hands 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.

Tim Bajarin, principal analyst with Creative Strategies, said the iPhone appears poised to 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's iPod commands about 75 percent of the market for downloaded music and portable music players. The company's iTunes digital media store has sold more than 2 billion songs, 50 million television episodes and more than 1.3 million feature-length films, catapulting iTunes beyond Amazon.com for digital media sales.

Initial hopes for the iPhone are relatively modest. The company hopes to sell about 10 million units in 2008, or about 1 percent of the market. About 957 million cellular phones were sold in 2006.

But the phones are expected to have a "halo effect," intimidating competitors and polishing Apple's reputation as a maker of elegant, easy-to-use gizmos that technophiles pine for. It could even boost sales of Apple's Macintosh computers.

On Tuesday, Apple also unveiled a set-top, video-streaming box dubbed Apple TV. The $300 gadget — which has a 40-gigabyte hard drive and stores up to 50 hours of videos, 9,000 songs or 25,000 photos — will be available in February.

"We sell Macintoshes and will continue to do so and are very happy with that business," said Phil Schiller, senior vice president for worldwide marketing. "We sell iPods but people don't think of them as computers, and we don't think they'll think of iPhones and AppleTV as computers either."

The phones, which will operate exclusively on AT&T Inc.'s Cingular Wireless network, will start shipping in June. A 4-gigabyte iPhone will cost $499, while an 8-gigabyte model will be $599.

Cingular would not provide details of its financial arrangement with Apple. Executives said both companies would make and distribute advertisements for the iPhone in the spring.