Thousands of tech faithful snap up first iPhones

SAN FRANCISCO/NEW YORK (Reuters) - Thousands of U.S. gadget fans flocked to stores on Friday to be the first buyers of Apple’s iPhone, a music-playing and Web-browsing device expected to shake up the mobile industry.

Crowds lined up at some of Apple’s outlets cheered as their doors opened at 6 p.m. local time, while smaller groups waited outside AT&T stores. AT&T Inc. is the phone’s exclusive wireless carrier for the first two years, which many early reviewers cited as the phone’s biggest drawback.

“I haven’t slept in a day and a half,” said Grant Johnson, 41, an accountant from Brooklyn who was one of the first to walk out of Apple’s Fifth Avenue outlet clutching the prize. “I need a nice hot shower and a bath.”

Early hitches included a hiccup in AT&T’s retail computer system that delayed some East Coast sales for 45 minutes, and a sluggish response from Apple’s online store shortly after it began offering iPhones.

The iPhone melds a phone, Web browser and media player, and costs $500 to $600, depending on memory capacity. Technology gurus praised it as a “breakthrough” device, but questioned whether users would be unhappy with shortcomings such as its lack of a hardware keyboard and pokey Internet link.

The light, svelte gadget is a gamble by Apple Inc. co-founder and Chief Executive Steve Jobs to build upon his company’s best-selling iPod music player and expand the market for its software and media services.

“They want to extend the dominance they have in terms of their ability to create really elegant hardware and software integration,” said Mark McGuire, analyst with research firm Gartner. “This is the next big business unit for them.”

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Apple aims to sell 10 million iPhones in 2008, which would amount to a 1 percent share of the global market. It has not given a sales goal for the launch, but some analysts said it could sell up to 400,000 units in the first few days.

What is less clear is whether sales will hold up once the initial excitement has waned.

Piper Jaffray said this month Apple could sell 45 million iPhones in 2009, which would put it on par in terms of revenue with its two key businesses, the Mac computer and the iPod.

Many analysts say Apple’s share price could rise 30 percent in the coming year if the phone catches on, but some cautioned that the shares are already richly valued.

“Apple shares have already benefited from a powerful hype cycle,” Cowen & Co. analyst Arnie Berman wrote in a report.

Shares of Apple rose 1.2 percent to $122.04 on Friday and have gained more than 30 percent since Jobs unveiled the phone in January. AT&T shares rose 1.9 percent to $41.50.

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Talk of the iPhone rippled through the wireless industry before even a single unit had sold.

Ed Colligan, chief executive of rival Palm Inc., told Reuters on Thursday that sales of its Treo smartphone could “stall” in the short term as people try out the iPhone.

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Apple is due to sell it in Europe in the run up to this year’s holiday season. It has not disclosed the price or carrier, but speculation has mounted it may reach a deal with Vodafone Group Plc. Asian sales are expected in 2008.

Friday’s launch, which whipped tech lovers into the sort of frenzy usually associated with a new video game console, was seen as a test of wider U.S. demand for the sort of advanced phones that are already popular in parts of Asia and Europe.

Judging by its first customers, the iPhone seemed to draw an older generation of gadget geeks rather than young fans who may have been put off by the price.

“The phones out there are just garbage. I’ve gone through several phones, even the expensive ones. This is different,” said Albert Livingstone in Chicago. “It’s the newest toy. I’m 62 -- I don’t have much time left to buy toys.”

Although a service contract costing at least $1,400 over two years was widely thought to be mandatory, AT&T revealed to Reuters late on Friday that buyers with bad credit can obtain prepaid service, meaning they pay up front for call time.

Some early buyers aimed to make a profit on the iPhone by selling it or getting paid to wait.

At an Apple store in downtown San Francisco where about 500 people had gathered, one young man walked out with a phone and began shouting a price: “Fifteen-hundred, fifteen-hundred!”

Many made good on their plans to try to flip the gadgets online, but easy profits appeared out of reach for most. Of the hundreds of phones listed on auction site eBay, the vast majority had failed to attract a single bid or were still well below the retail price.

In Hollywood, the event took on shades of another recent headline-grabbing phenomenon as Apple Vice President Greg Jozwiak emerged from a store to show off the device and was mobbed by the eager crowd.

“I now feel like Paris Hilton,” Jozwiak joked.

Additional reporting by Franklin Paul, Robert MacMillan and Kenneth Li in New York, Regan E. Doherty in Chicago, Eric Auchard in San Francisco