Apple edges ahead in smartphone stakes

13 Sep, 2012

For a company whose informal motto is "insanely great", many observers' reaction to Apple's new iPhone was merely: "good enough".

But most believe that will be plenty to give Apple back its edge over main rival Samsung and over Google's Android software which powers the Korean manufacturer's Galaxy family of devices.

Benedict Evans of Enders Analysis said that while Samsung's flagship Galaxy SIII was superior to the iPhone 4S, the iPhone 5 puts Apple "back into a tech leadership position" for the next six to nine months.

"Effectively, Apple is maintaining the status quo," he said. "It has probably the best phone on the market but also the most expensive, and it will continue selling in large numbers at high prices while Android sells in far higher numbers at much lower prices to quite different customers."

Apple seems to have added just enough new features to turn would-be Samsung customers' heads. At the same time as reducing weight and width, Apple has elongated the iPhone's screen, so that it can show more days on a calendar or widescreen movies, without compromising the user experience.

The display is still smaller than the Galaxy SIII or Motorola's Razr HD, but Apple portrayed this as a benefit, suggesting larger devices are harder to use with one hand. Maintaining the same width also means that existing apps will work fine with the new iPhone.

Many of the improvements will come in the iOS6 software the new model runs, which includes Facebook integration and Passbook, a new way to collect digital transport and event tickets and store loyalty cards in a single app.

Apple drew the requisite gasps from the watching crowd in San Francisco's Yerba Buena Center for a virtual fly-by of Big Ben in its new Maps application.

The new iPhone's battery life, price, storage space and even its overall look remain broadly similar, with most of the new features leaked in the last few weeks and months.

Investors seemed content with that balance of new and familiar, sending Apple's shares up by 1.4 per cent, though they remain below last week's highs.

"Have they done more than what people had anticipated? No," said Carolina Milanesi, mobile analyst at Gartner. "But at the end of the day none of that matters."

Few analysts see the relative lack of surprises from Tim Cook and his leadership team on Tuesday as a barrier to the iPhone 5 breaking new sales records, as the Apple marketing machine gears up for the most competitive smartphone Christmas sales season yet.

"The new iPhone will prove a major success for Apple," said Ian Fogg, head of mobile at IHS Screen Digest, an analyst group, who sees software and services as Apple's key differentiator over Samsung and Google.

"The incremental improvements tie into the wider Apple ecosystem to make a compelling smartphone for consumers, app developers and carriers," he said. IHS expects Apple to ship 148.9m iPhones in 2012, compared with 357m devices using Google's rival Android system this year.

IHS' estimates suggest about a third of the 435m people who have registered accounts on iTunes, the Apple software hub and payments system which is core to that ecosystem, will buy a new iPhone – whether the latest model or its discounted predecessors, with the iPhone 4 now free with a two-year contract.

Amazon, Apple's next nearest competitor in the digital content world, has 180m credit card user accounts, which is a boon to its Kindle Fire HD.

Chief smartphone rival Google said in June that it had 425m active users of its Gmail service. A Google account is needed to synchronise an Android handset. Andy Rubin, Google's senior vice-president of mobile, said on Tuesday that each day, 1.3m new Android devices are switched on for the first time.

By controlling the end-to-end user experience, Apple believes it has something its competitors do not. Each iOS device owner has downloaded an average of 100 apps, Mr Cook said on Wednesday – apps which they cannot take with them if they move to Android or Microsoft's Windows Phone.

"Only Apple could create such amazing software, hardware and services and bring them all together into such a powerful yet integrated solution," said Mr Cook, noting the new iPods and an improved iTunes software which were also unveiled on Wednesday. A new, smaller iPad is also expected to join this portfolio in the coming months. Only two things could stand in the way of an iPhone-dominated Christmas: a patent dispute that prevents the device from going on sale or a component shortage.

"The change in design could create a potential headwind if Apple is not able to manufacture enough devices to match demand," said analysts at Canaccord Genuity in a note to clients on Wednesday. "LG and Japan Display could be bottlenecks in the supply chain if they are not able to manufacture enough screens."

Industry rumours suggests that Samsung is considering legal action against the new iPhone's inclusion of faster "LTE" wireless networking. But intellectual property experts say that with few precedents in the many other disputes between Apple and Samsung, the Korean manufacturer would be unlikely to be able to get an injunction in the next few months.

Apple investors seem confident these risks are minimal, judged by short-selling activity – in effect bets on a share-price drop – among smartphone makers.

Tim Smith, executive director of SunGard's Astec Analytics business, which analyses short-selling activity, notes that while investors have borrowed all Nokia shares available for shorting, and HTC saw a 25 per cent rise in borrowing on Wednesday, "no one is betting against Apple".

More News From Financial Times