All Things Digital

U.S. and European handset demand was “lackluster” in August, creating pressure on pricing, Pacific Crest’s James Faucette asserted in a research note this morning.

Faucette says says handset sell-through is up sequentially from July, but below expectations for the beginning of the back-to-school season. He adds that “price pressures on handsets continue to mount.” He notes that the mix of Apple (AAPL) iPhone 3G sales during August has shifted “decidedly” toward the $199, 8GB model. He says that will increase the difficulty of selling other smartphones “in the usual $250 to $300 range.”

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As sales of Apple 3G iPhones continue to grow, there are also increasing reports of trouble with 3G reception on the devices.

Certainly, demand is robust. Lehman’s Ben Reitzes today writes in a research note that “checks indicate” Apple (AAPL) iPhone demand in the fiscal fourth quarter ending September could top his current estimate of 3.8 million units. And he adds that this “bodes well for cash flow,” and for “an enhanced halo effect for Macs.”

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Not that you’d notice it from yesterday’s stock action, but Citigroup analyst Jim Suva thinks BlackBerry-maker Research In Motion (RIMM) is setting itself up for a strong second half of the year with the introduction over the next several weeks of its 3G version of the BlackBerry, the “Bold.”

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This weekend in San Francisco, the second annual iPhoneDevCamp 2 is underway. Whereas the first confab focused primarily on Web applications, this one has a definite native application flavor, thanks in large part to the fact that the iPhone software development kit (SDK) is out of beta and now available for developers.

When the iPhone was released in June, many developers were disappointed by the absence of an SDK for writing third-party applications on day one.

At D5, Steve Jobs explained to Walt Mossberg that Apple (AAPL) first needed to iron out some security issues before they would open up the device to outside developers:

We would like to solve this problem and if you could just be a little more patient with us, we’ll do it.”

–Steve Jobs at D5 on the availability of an iPhone SDK

Fast-forward to the first quarter of 2008, when Apple made good on its promise by releasing an early version of the iPhone SDK. The fruits of the patient developers’ labor was evident at the launch of the iTunes App Store, where 500 free or commercial applications were available to download onto the new iPhone 3G or the original iPhones running iPhone OS 2.0.

No longer were iPhone users confined to using Web applications running in Mobile Safari or resorting to jailbreaking their devices to use third-party programs.

The App Store made it dead simple for every iPhone user to duel their friends with PhoneSaber or satisfy their Dance Dance Revolution/Guitar Hero/Rock Band craving with Tap Tap Revenge, a game which recently celebrated its one millionth download.

At iPhoneDevCamp this year, there’s a greater and more palpable sense of excitement in the air than last year, and it’s reminding me of the time when I was writing applications for another Apple handheld product: the Newton.

While the green device from Apple was not a commercial success–it was surpassed in sales and popularity by the less-capable, yet smaller and more convenient Palm Pilot–the Newton nevertheless pioneered many features we now see perfected in the iPhone.

Fourteen years ago, the Newton could fax, send email and receive pages; the iPhone is a communications powerhouse with 3G/EDGE/Wi-Fi/Bluetooth.

Newton’s handwriting recognition was dramatically improved with Newton OS 2.0 in 1995; the iPhone has fantastic Chinese and Japanese character recognition.

Finally, the Newton promised a day when users everywhere had their own personal digital assistants in their pockets; today, millions of people have chosen their phone to be an iPhone.

Despite leading the Newton protest at Apple Computer in 1998, I admit that Jobs was right to cancel the Newton. He made the correct decision to focus the company’s efforts on Mac OS, and it’s paid off.

The iPhone, after all, is running a version of the same operating system powering today’s Macs. The release of the initial iPhone raised the bar significantly for mobile users tired of using the same-old devices from Palm, Microsoft, and Symbian.

At iPhoneDevCamp 2, the bar is rising even higher for native third-party applications. If you were excited about the first 1,000 apps, wait till you see what comes out this weekend!

Below are photos from Friday’s welcome reception at iPhoneDevCamp 2. For more information, visit the iPhoneDevCamp 2 web site.

AT&T is admitting that if it discovers users of its wireless broadband 3G service are making use of P2P apps, it will cut them off completely, and claims that it makes this clear in the terms of service. It hasn’t happened yet, but this bit of data will supposedly be used by a dissenting FCC commissioner this week to show that Comcast’s traffic shaping is pretty tame compared to other “rules” out there on network usage (ignoring the very different nature of the networks in question, of course).

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When Apple CEO Steve Jobs took the wraps off of the iPhone 18 months ago, the wireless establishment offered a smug response. At the Consumer Electronics Show in Las Vegas, a Nokia executive sniffed that Apple’s new gadget merely validated his company’s strategy, and voiced his surprise to journalists that the iPhone didn’t use the latest 3G networks for fast data connections. “Overall, it’s very exciting for us,” he said, implying the mighty Nokia had nothing to worry about.

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Research In Motion (RIMM) shares are lower this morning heading into the company’s announcement after the close of results for its fiscal first quarter ended May. The Street consensus is for revenue of $2.27 billion and profits of 85 cents a share.

Meanwhile, RBC Capital’s Mike Abramsky asserts in a research note this morning that AT&T (T) appears likely to launch the new 3G Blackberry Bold in mid-August, two or three weeks later than expected, “as it continues to stabilize the device” on its 3G HSPA network. He reports that the launch with Rogers in Canada is on track for July, with other carriers expected to offer the phone later in August.

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AT&T restructured its deal with Apple, said Ralph de la Vega, the chief executive of AT&T Mobility, in order to overcome resistance from mass consumers to the high $399 price of the iPhone. Now, instead of paying Apple a portion of their monthly fees, carriers like AT&T will make a large payment to Apple every time an iPhone is sold and attached to their network.

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The time is near.

I’m sitting in an exhibition hall at Moscone West in San Francisco, waiting for Apple (AAPL) CEO Steve Jobs to give the keynote at the company’s 2008 Worldwide Developers Conference. As usual, the place is overrun with media, analysts and the Apple faithful. The 3G iPhone’s debut should be minutes away.

I’ll keep updating this post through the morning. Stay tuned.

It’s 10:02. We’re close. Someone just told everyone to turn off–get this–all iPhones. (And Blackberries. And especially Windows Mobile Devices.)

I’ll keep updating this post through the morning. Stay tuned.

It’s 10:02. We’re close. Someone just told everyone to turn off - get this - all iPhones. (And Blackberries. And especially Windows Mobile Devices.)

Oooh. 10:06. Steve is on stage. He says there are a record 5,200 attendees, and they sold out. There are 147 sessions on WWDC, including 62 on the iPhone. 169 hands on labs. Over 1,000 engineers on hand.

Jobs says there are 3 parts to Apple. The Mac. Music businesses, with iPod and iTunes. The third part is iPhone. This morning, will talk about the iPhone. Jobs says he will bring Scott Forstall and Phil Schiller on stage later to help. Bertrand Serlet after lunch will give peak at Snow Leopard, the next version of OSX.

Start with iPhone software. The iPhone 2.0 platform software. Includes the SDK. Developer program on March 6; in 95 days, over 250,000 SDK downloads. Over 25,000 applied to pay developer program. Admitted 4,000 to the program.

Enterprise support: Exchange support out of the box. Push email, calendars, contacts. Can be remotely wiped. Worked with Cisco to include secure VPN services, and other network security demanded by the enterprise. 35% of the Fortune 500 has participated in the beta program. Top 5 commercial banks. Top 5 securities firms. 6 of 7 top airlines. 8 of 10 top phama cos. 8 of 10 top entertainment companies. Also who’s who of higher ed in the beta program.

They are showing a video with enterprise IT people talking about how much they like the new iPhone software.

Stock update at 10:15: Apple down $2.81, or 1.5%, at $182.83.

Jobs brings Forstall on stage to talk about the SDK. He is talking about APIs. Same OSX kernel on the iPhone. Almost line for line source code as OSX. Comprehensive core services layer for database API with SQL Light and core location, to easily build location based services into your application. (SOUNDS LIKE THEY ARE DOING GPS IN NEXT VERSION, is what that sounds like to me.) Core audio, including hardware acelerated OpenGLES for graphics. (For games, for instance.) Also Cocoa Touch - user interface object oriented framework. Instruments is a full suite of performance tools

Schiller is going to do a demo of Interface Builder. It’s a little on the, uh, crunchy side. This is a developers’ conference, after all. Creating tool bars. Layout tools. I’m trying to get excited about this. It does seem easy to build a user interface for the phone.

Schiller says in 3 months, there are 1000s of developers using the tools in the SDK. He is reading quotes from people who love the SDK for the iPhone. Disney likes it. Someone from InfoWorld likes it. Fox Interactive Media. David Pogue of the New York Times.

Can we see the 3G iPhone now?

No, not yet.

Schiller is bringing some developers on stage to do some software demos. First up is Sega. In March they showed a version of Super Monkey Ball. Someone from Sega named Ethan Einhorn is going to demo the game. One of the interesting features is using the accelerometer in the phone to steer around the playing field for the game. Will launch with the AppSore at $9.99.

Next demo is from eBay: Ken Sun is the eBay guy doing the demo. They are showing Auctions on the iPhone. Took them 5 weeks to develop. Easy access to search on eBay. Summary of activity. They are searching for Wii Fit; brings up all the items for sale. Easy to add items to Watch List. Can see current bids; or make new bids. Will be a free download.

Loopt: Sam Altman is doing their demo. You can see on a map where your friends are. He says it is best version they have ever made. They have developed for most mobile platforms. You can tap on pins on the map, and see what they have posted in the way of photos, or text. Integrated with iPhone, so can send email or call. The power of location, plus contact list. “You never have to eat lunch alone again,” he says. Will be free on iPhone App Store.

Next: TypePad, with mobile blogging application. Demo is by Michael Sippey. He is demonstrating how to blog from the phone, including using the camera. It’s apparently a lot easier to blog from the phone than it is to blog from my laptop.

Stock update at 10:38: down $4.55, or 2.4%, to $181.15.

Next demo: the Associated Press. They build something called the Mobile News Network. Use location APIs to auto retrieve content from multiple sources. Also can read top news, business, entertainment and sports news. Can also watch video from their news network. You can even email them accounts of news events; the AP as a forum for user-generated news. Another free download.

Demo: Pangea Software. Brian Greenstone is showing two games ported from Mac to iPhone. One is Enigmo, physics based game. The other is Cro Mag Rally, a 3D caveman racing game. In that game, the iPhone itself is the steering wheel. The device is the controller. Both games are priced at $9.99 each.

Demo: A guy who works in the insurance industry in England. His name is Mark Terry, and he has a demo called Band, which is a collection of virtual instruments. A two octave piano. A drum kit, called Funky Drummer. 12 bar blues instruments, for playing the Blues. And a bass guitar for backing tracks. All can be recorded, overdubbed, and jam. Will be on the store in a few weeks time.

Demo: MLB.com: Jeremy Schoenherr. Brand new app for the iPhone. It’s called MLB@Bat. You can see who is batting, pitching, line score. What you can’t get anywhere else: real-time video highlights. Clips come minutes after the play. Right after it happens on the field. In the app store when it launches.

Demo: Modality. Demo by S. Mark Williams. It’s a learning application for medical students. Created app to replace flash cards to memorize anatomical information.

Demo: MIMvista, a developer of medical imaging software. Mark Cain is their demo guy. He is showing how radiologists can see images on the iPhone. It’s pretty cool stuff, if you are a radiologist.

Last demo: Digital Legends Entertainment. Based in Barcelona. Started on their project 2 weeks ago. It’s a game. Xavier Carrollo Costa is their demo god. They are a mobile game developer. They ported an action adventure game. Full 3D characters. I think the game is called Krull. (But I’m not sure.)

Stock update: Down 7.08, or 3.8%, to $178.56.

Apple will include Push Notification Service to developers; when you quit application, no more connection to server. Maintain persistent IP connection to the phone; so third party apps can push notifications. Can push badges, custom alert sounds, customer text alerts. And can include buttons to auto-launch applications. For all developers. Presever battery life to avoid background processes eroding performance. Will be available in September.

Jobs is back. He is talking about some new features in the software. Contact search. Added iWork document support. And Office documents. Had Word and Excel, and now Powerpoint as well. Added bulk delete and move. Save photos to iPhoto. Turn calculator to landscape mode to turn it into scientific calculator. Added parental controls. And added a tremendous amount of language support. Includes two forms of Japanese, two forms for Chinese, both simplified and traditional. Includes one where you draw the character with your finger. Also can change languages on the fly. One of the great advantages of not having a bunch of plastic keys, Jobs says.

Jobs is talking about App Store. Developers get 70% of revenue. No credit card or hosting fees. No charge for free apps. FairPlay DRM. Enlarged from 22 countries, now in 62 countries, almost anywhere in the world. 10 MB or less, can be downloaded over cellular or WiFi or iTunes. For over 10 MB, can use WiFi or iTunes.

Adding new way for enterprises to distribute apps internally. Companies can authorize apps and distribute on their own Intranet. Download to computer, synch to phone from iTunes.

Another way: Ad Hoc distribution. Expand developer certification program. Up to 100 iPhones; mailed around, posted anywhere. So two additional ways to distribute apps beyond the App Store.

New service: MobileMe. Phil Schiller is doing the demo. He jokingly calls ActiveSync “Active Stink.”
With MobileMe, can all get push email, contacts and calendars, so everything is up to date. Stores information up in the cloud, to get to it with any devices. Mac, PC, or iPhone. Push information up and down to keep everything up to date all the time. It’s like Exchange for people without Exchange.

Schiller says they also built Web 2.0 applications giving desktop like experience on the Web. Go to any computer, use me.com. Schiller is going to demo the application. Email Calendar. (The site does not appear to work yet, by the way; try it yourself.) Will work on any native apps on Mac or PC. $99 a year service, with 20 GB of online storage. Free trial for 60 days. Available in early July. Will replace .Mac. Can continue to use .Mac service and addresses, but can switch over whenever they want.

Now, iPhones. Jobs notes Apple introduced first iPhones June 29 of last year. Users love their iPhones, Jobs says. 90% customer satisfaction. 98% are browsing. 94% using email. 90% are text messaging. 80% using 10 or more features. Sold 6M iPhones until we ran out a few weeks ago.

Next challenges: 3G network. Enterprise support. 3rd party apps. More countries. More affordable. 56% say it is too expensive.

Take it to the next level: iPhone 3G.Thinner. Full plastic back. Same 3.5 inch display. Camera. Flush headphone jack on top. Improved audio. Why 3G? For faster data downloads for browser and email attachments. 3G speeds are actually approaching WiFi. “Amazingly zippy,” Jobs says. 36% faster than Nokia N95 or Treo 750, both 3G phones.

Battery life: 300 hours standby. 3G talk time of 5 hours, better than 3 hours on other phones. 5-6 hours of high speed browsing. Video 7 hours. Audio 24 hours.

GPS is built into the new phone.

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There’s not a lot of hard Apple (AAPL) news for the Street to chew on ahead of Monday’s expected announcement of the 3G iPhone at the Worldwide Developers Conference in San Francisco. That’s left the Street struggling to figure out something new to say about the yet-to-be-announced new phone that hasn’t already been said. Here’s a brief rundown on what some of the analysts are saying.

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AT&T is planning to put some extra shine on the even sleeker new Apple iPhone. When the 3G iPhone is introduced this summer, AT&T, the exclusive U.S. iPhone sales partner with Apple, will cut the price by as much as $200, according to a person familiar with the strategy.

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Turns out the iPhone shortage isn’t limited to New York Apple stores: Piper Jaffray analyst Gene Munster called 20 Apple stores nationwide today–and all of them were sold out of iPhones. In a note, Munster says the lead time for iPhones on Apple.com is still “5-7 days.” What does this mean?

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Apple’s new iPhone may well be a revolutionary product in some ways. But after testing one of the devices that went on sale late last month, I’m steering clear, at least for now, of the most shamelessly overhyped consumer product since Windows 95.

For all its admirable features–the large screen, gorgeous industrial design and advanced user interface in particular–the iPhone feels like a beta product. It’s still early in development and suffers from deal-breaker drawbacks.

The worst is the overall control-freakery from Apple, the manufacturer, and its telecom partner, AT&T. You want choice? Not a chance.

Consumer Reports notes that AT&T is one of the least-favored U.S. mobile carriers, for network quality and customer satisfaction. Worse, the company’s low-speed digital network is inadequate for a device that boasts of being Internet-native, and the Wi-Fi capabilities don’t make up for that lapse. (And never mind AT&T’s recent decision to become Hollywood’s accomplice in tracking customers’ Internet activities, not to mention its Big-Brotherish coziness with government snoops.)

I’m a frequent traveler outside the U.S., and this phone doesn’t cut it for serious international use. If I want to make GSM calls, I’m stuck with AT&T’s roaming rates; with my current phone I can swap SIM cards to use another carrier’s cheaper local service if I don’t like the international roaming rates from T-Mobile, my current carrier.

Apple can’t fix AT&T. But the device itself, however alluring, needs upgrades. For example, on the international roaming front, the iPhone provides no access to other carriers’ 3G networks, which means the phone won’t work at all in places like Korea, where my 3G-equipped GSM phone works fine.

The onscreen keyboard isn’t bad if you’re “typing” in landscape mode in the Web browser, because the keypad in that mode is sufficiently large to help you avoid errors. But if you’re trying to create an SMS or email message in the phone’s portrait mode–it doesn’t adjust to the sideways view with those applications–be prepared for some frustration. I wasted lots of time backspacing over mistakes and retyping things, and the “predictive-text” feature didn’t predict my words with much accuracy.

The camera is adequate for some purposes, and that’s the best you can say about it. There’s no zoom, and no video recording mode.

An especially cheesy “feature” is a headphone jack that requires an adapter for many popular headsets (or some surgery on your current headphone plug). There’s no excuse for this.

Then there’s the nonremovable battery, which Apple says is designed for at least 400 charge cycles and an unspecified number of charges at up to 80% of battery capacity afterward. That will steer people–perhaps this is the idea–toward new phones. Meanwhile, Apple has found another way to make money on this design choice: It’ll sell a new battery for about $80 and keep your phone for a few days in the process.

Despite running a version of the OS X operating system, the iPhone is locked down in its software capabilities, which means that third-party software developers–and therefore customers–are mostly out of luck if they want the kind of applications that have made other smart phones so versatile. Apple’s claim that there’s enough flexibility in the Web browser for third-party development is beyond ludicrous; it’s downright insulting.

More lockdown: The iPhone is unusable in any capacity until it’s activated with the phone company. Want to use it just for Wi-Fi-based Web browsing, plus video and audio and note-taking? Forget it.

Still more: I can use my current phone as a modem with a PC or Mac, something I do on occasion when out of range of a broadband or wireless network. The iPhone doesn’t allow this. Why not? (To be fair, some phones are locked this way.)

No doubt, some of the iPhone’s current drawbacks will be resolved with software upgrades. Some problems can’t and won’t be fixed, at least not in the U.S. version, where AT&T will be the exclusive carrier for the next few years.

All that said, I do love the way the thing looks and feels–and in many respects, the way it works. If other phone-makers don’t adopt the iPhone’s best features (I assume they will), I’ll definitely consider getting one at some point.

But I’ll consider it only when Apple starts selling it in Europe or Asia with 3G capabilities; when I can install a SIM chip from the GSM/3G carrier of my choice; when the software is significantly upgraded; and when third parties can give me the features I want, as opposed to solely the ones Apple thinks are good for me.

That sounds like iPhone 2.0, at the earliest. For now, the initial product doesn’t come close to living up to the hype.