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Apple faces 3G iPhone challenge in 2008

Analysts discuss technical challenges of iPhone 2

The highly anticipated 3G iPhone will be with us in mid-2008, according to Apple analysts in the US.

However, American Technology Research analyst Shaw Wu pointed out that, despite the hype and (in some areas) the coverage, 3G access - and usage - isn't yet mainstream, certainly not in the US.

"Even in Europe and Japan, where the technology is more available, network coverage is somewhat spotty," said Wu. "While there are a decent number of 3G phones (10-15 percent) being shipped, the untold reality is that they use much more prevalent 2/2.5G wireless infrastructure most of the time. In addition, 3G is not as field tested. We think a particularly important data point is that RIMM, the leading smart phone vendor, has experienced a lot of success with 2/2.5G BlackBerries."

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Wu points to the cost of setting up, manufacturing and using 3G devices as market inhibitors, estimating the cost of such support as adding around $15 or more to the cost of a 3G device. "We believe these price points need to come down a bit before 3G can be widely deployed."

Echoing Apple, Wu also observes that 3G uses "too much power", saying: "Our sources indicate that 3G requires 35-40 percent more power to run. This is a key issue as Apple seeks to deliver as much battery life as possible on its highly functional iPhone."

Despite these limitations, Wu thinks a 3G iPhone is likely to appear in the "mid- to-second half 2008 timeframe".

He says: "We believe by then, the network coverage, price points, and battery life issues will be better addressed. Should Apple decide to ship earlier, it will likely be positioned as a high-end smart phone and allow the company to reposition the current 2.5G iPhone as a more mainstream product."

Wu rates Apple as a stock to buy with a 6-12 month target price of $210 per share.


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