iPhone impresses, but future uncertain

analysis Apple's first-ever cellular device scores on design, but analysts raise concerns in its ability to do well in the competitive smartphone segment.
Written by Farihan Bahrin, Contributor

analysis Apple's new iPhone may be in a league of its own but the company still needs to overcome legal hurdles and peripheral issues, analysts say.

Commenting on Apple's newly-launched mobile gadget, Ovum's director, Martin Garner, thinks the Cupertino-based company "has scored a major hit by not doing a me-too product, but by going for a very high degree of differentiation".

"The product really looks special. But the real treat is inside, with the different approach to the user interface that Apple has taken," Garner noted in a press statement, adding that the iPhone may have created a new category in the mobile handset segment that few other handset makers can enter easily.

"All [handset makers] should work very hard on their UIs, which we believe are currently an obstacle to greater usage," advised the Ovum director. "Apple has done away with the physical UI, putting all the effort into a finger-powered touch screen UI. It takes a very confident company to discard one of its key strengths--the scroll wheel."

While Garner bemoaned the lack of 3G support on the iPhone, he expects Apple to announce an HSDPA (high speed downlink packet access) version for Europe and the Asia-Pacific soon.

"EDGE is not as widely used in Europe as in the US, so many European users will suffer the very slow GPRS browsing experience," he predicted. Edge (Enhanced Data Rate for GSM Evolution)--often described as GPRS (general packet radio service) on steroids--offers data access speeds that are three times faster than GPRS.

Ovum analyst Jonathan Arber added that the business model of European mobile providers could also have an adverse impact on Apple's game plan in Europe.

Said Arber: "It will be interesting to see what route Apple takes into the European market, where handset subsidies are the norm, and many consumers are used to paying little or nothing for their music phones."

Interface idiosyncrasies
One industry observer still not totally sold on the iPhone's patented touch-based interface--touted as one of the device's key features--is David McQueen, principal analyst at Informa Telecoms & Media.

"Common complaints with previous touchscreen user interfaces have been the lack of feedback to keystrokes other than visual feedback, which can slow down the text input process significantly," McQueen pointed out in a statement. "Furthermore the touchscreen usability and reliability in different environmental conditions could be a concern."

While McQueen expects the iPhone to give Apple the chance to develop a third revenue stream after the company's computer and iPod product lines, he acknowledged that seizing significant market share would be an unlikely scenario for Apple in the near future, since the company still lacks the scale of its competitors.

"The iPod dominates its market and has sold a cumulative total of 67.6 million units until September 2006. While this is impressive it is less than Nokia's average quarterly phone shipments in 2006," reasoned McQueen.

He added: "[If] Apple can secure even a small percentage of what Informa Telecoms & Media forecasts will be a 1.06 billion unit handset market in 2007, this would have a substantial impact to the company's bottom line."

Then there is also the issue of the legal spat with Cisco Systems.

Amidst the pomp and grandeur surrounding the Macworld Expo event, Apple executives on Wednesday faced Cisco's lawsuit which accuses the company of infringing its iPhone trademark.

Apple now faces a possible legal sanction on the use of the iPhone moniker, which the networking giant claims it has owned since 2000.

When contacted, a Cisco spokesman based in Singapore told ZDNet Asia that the legal course was a necessary step to protect the company's iPhone brand. The spokesman added that Cisco had previously been open to the idea of sharing the iPhone trademark with Apple.

"We made that clear. Cisco entered into negotiations with Apple in good faith and with the full intention of finding a way for the two companies to use Cisco's iPhone trademark," said the spokesperson in an e-mail. He added that Apple had approached Cisco several times over the past five years to acquire rights to use the iPhone trademark and had even acknowledged Cisco's rights to the trademark.

"Through their actions yesterday, it is clear that Apple decided to forgo an agreement and to utilize Cisco's trademark unlawfully," he said.

When asked whether there is any possibility of an out-of-court settlement, the spokesman said that Cisco preferred to settle the issue without litigation and has worked very hard to that end.

"The issue at stake is not about money, and it is not about the phone itself; it is about Cisco's obligation to protect its trademark in the face of Apple's willful violation of it," the statement said. "Trademarks should not be used without permission."

ZDNet Asia was unable to obtain comments from Apple or its representatives at press time.

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