Apple introduces "zippy" iPhone, slashes price

By Scott Hillis

SAN FRANCISCO (Reuters) - Apple Inc (AAPL.O) on Monday unveiled a next-generation iPhone with faster Internet access that will run on advanced wireless networks and sell for as low as $199 -- half the current entry-level price.

Shares of Apple, after strong recent gains partly driven by anticipation of the new iPhone, fell 2.2 percent after Chief Executive Steve Jobs confirmed the new iPhone's release.

Shares of Palm Inc (PALM.O), maker of the Treo, a rival high-end smart-phone, fell 4 percent.

Improved e-mail features for the iPhone are intended to woo business people, while its ability to run on faster networks is key to Apple's push to gain market share in Europe and Asia.

"It's amazingly zippy," Jobs said, showing off the encore to a device that melds a mobile phone, iPod media player and Web browser. The new iPhone, available in black and white, loads Internet pages about 2.8 times faster than the original, he said.

Analysts said it would change the stakes in the mobile market given its price, business-oriented services, and speed.

"It changes the game for all smart-phone makers," said Tim Bajarin, head of Creative Strategies, referring to the price.

An entry-level version of the new iPhone, with 8 gigabytes of memory, will cost $199, versus $399 for an older-generation iPhone with similar memory. A version of the new iPhone with twice the memory will cost $299. Both will go on sale in 22 countries on July 11.

"This positions Apple well vis a vis other smart-phone competitors such as Nokia (NOK1V.HE) and RIM," said Shannon Cross of Cross Research, referring to Research in Motion Ltd (RIM.TO), which makes the BlackBerry e-mail device. "IPhone is no longer an expensive device. It's now priced at the mass market."

The new iPhone will run on third-generation (3G) wireless networks and includes satellite navigation capability, Jobs told developers at a conference in San Francisco, about a year after the original iPhone went on sale.

A new service, "MobileMe," will send automatically e-mail and other information to iPhones, similar to Microsoft Corp's (MSFT.O) Exchange e-mail server product. The pay service will also offer Web applications intended to make the phone work more like a desktop computer.

"It clearly puts them in a competitive position on the services side against Google (GOOG.O), Microsoft and most importantly Nokia," Ben Wood, research director of UK-based CCS Insight, said of MobileMe.

Apple has sold 6 million iPhones, Jobs said, and analysts say the business could eventually match the size of its Macintosh computer or iPod businesses.

Apple shares closed at $181.61 on Nasdaq. Prior to Monday's fall, the stock had risen more than 50 percent in the past three months, primarily on strong demand for Macs and iPods, as well as anticipation of the new iPhone.

(Additional reporting by Sinead Carew in New York and Georgina Prodhan in Berlin; Editing by Braden Reddall)