Apple unveils iPhone 4 to fend off Google

SAN FRANCISCO (Reuters) - Apple Inc's newest iPhone model goes on sale this month, as the company strives to stay a step ahead of a growing cast of rivals like Google Inc in the red-hot smartphone market.

Chief Executive Steve Jobs wowed a packed room on Monday with the new $199 "iPhone 4," which is a quarter slimmer than the current handset, with about double the picture quality; sports the in-house A4 processor or computing brain; and allows video chat.

A slim but energetic Jobs told an investor and industry audience at Apple's annual developers' conference in San Francisco that the latest phone goes on sale June 24 in five countries, expanding to 18 by July and 88 by September in the fastest-ever international roll-out for an iPhone.

But many of the technological improvements had been expected, and analysts say it will take a lot to stand out from the crowd. Google's Android operating system -- used by many brands from Motorola Inc and HTC Corp to Samsung Electronics Co Ltd and Dell Inc -- poses the biggest threat, analysts say.

"This is more evolutionary than revolutionary -- it doesn't completely change the paradigm for the iPhone," said Hudson Square Research analyst Daniel Ernst. "Expectations get so high for these product launches and announcements that a lot of times, by the time it comes out it's already in the stock. They always have to walk on water in order to impress the market."

The stock has gained more than 20 percent this year, and the company overtook Microsoft Corp to become the world's most valuable technology company.

Apple's shares were down 1.9 percent to $251.11 in busy late afternoon Nasdaq trading in a weakening market. Google shares were off 2.9 percent, while Research in Motion Ltd was down 6.0 percent.

Still, the phone garnered mostly positive initial reviews.

"But what you're buying from Apple is not just the hardware. It's the whole package, including the apps and the store. That is very impressive," said Gartner analyst Kenneth Dulaney.

GOLD STANDARD

The iPhone -- introduced in 2007 and creating the touchscreen, on-demand application template now adopted by its rivals -- remains the gold standard in the smartphone market.

The smartphone market is exploding. According to research group Gartner, global sales rose nearly 50 percent in the first quarter. The iPhone has boosted Apple's margins, transforming the company into one of the world's leading mobile device makers and setting the competitive landscape in a smartphone battle that will play out for years.

Apple sold a record 8.75 million iPhones in its latest quarter. accounting for 40 percent of its revenue. With margins estimated at 60 percent, it is Apple's prime growth driver, helping margins climb to a record 41.7 percent in the most recent quarter from 34 percent in fiscal 2007.

On Monday, Jobs strutted about the stage and whipped up the crowd into a near-frenzy -- stopping short only when his demo choked up in mid-stride and he demanded that the audience power down laptops to free up wireless-network bandwidth.

But the competition is wising up.

Only last year, Research in Motion Ltd was seen as Apple's top rival. While the company's BlackBerry remains the smartphone of choice for many corporations that need fast email, Apple has made strides in that market as security concerns addressed by the BlackBerry have eased.

Now, new competitors are designing high-powered handsets based on Google's Android software, offering fast, web-surfing and video-enabled phones with access to thousands of apps.

The iPhone's global share surged to more than 15 percent in the first quarter, making it No. 3 in cellphones. Phones based on Android ranked No. 4 with close to 10 percent of the market, a huge increase from the previous year and gaining, Gartner data show.

Gartner said Android beat Apple in the North American market in the first quarter and would catch the iPhone maker globally soon.

Many analysts believe Apple may have also struck gold with its newest gadget, the iPad, which could provide another growth engine to complement the iPhone. The iPad launched in April and has already sold more than 2 million units.

The iPhone and iPad are linked by a common operating system. The latest version of that software -- complete with the long-awaited multi-tasking function and Apple's iAd ad network -- will ship on the newest iPhone model.

In the United States, Wall Street and consumers alike are also anticipating an iPhone on the network of Verizon Wireless, the No. 1 phone company and a venture of Verizon Communications Inc and Vodafone Group Plc. Most analysts expect a Verizon iPhone some time next year, or perhaps as early as this fall.

(Editing by Edwin Chan and Gerald E. McCormick)