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Apple to Unveil IPhones Seeking End to Year of Struggles

Sept. 10 (Bloomberg) -- Apple announced two new iPhones including one with lower prices and more color options, in a strategy shift by CEO Tim Cook to reach a broader range of customers around the world. Jon Erlichman has more. (Source: Bloomberg)

Apple Inc. (AAPL)’s introduction of new iPhones is a chance for the company to turn the page on a dour year that included no big new gadgets, a falling stock and stepped-up competition.

Apple will update its flagship product, adding more colors and a less-expensive model, at an event at its Cupertino, California, headquarters today, a person with knowledge of the plans said last month. Apple, which will hold a viewing of the presentation in Beijing for the first time, is also close to securing deals with China Mobile Ltd. (941) and Japan’s NTT DoCoMo Inc. (9437) to sell iPhones in Asia’s biggest markets.

Chief Executive Officer Tim Cook, two years after succeeding Steve Jobs, is counting on the new devices to restore some of Apple’s glow by luring new customers and reigniting growth. He’s facing pressure to reverse declining profit as smartphones from Samsung Electronics Co. (005930) and other consumer-electronics makers chip away at iPhone sales in an increasingly saturated market.

“Apple needs to both wow existing customers and convince them to upgrade their older phones, and it also needs to attract new people to their platform,” said Sarah Rotman Epps, an analyst at Forrester Research Inc. in San Francisco. “It’s been a long time since they introduced a new product, and the stakes are high.”

Photographer: David Paul Morris/Bloomberg

The rollout of new iPhones will test Apple Inc. Chief Executive Officer Tim Cook’s new management team. Close

The rollout of new iPhones will test Apple Inc. Chief Executive Officer Tim Cook’s new management team.

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Photographer: David Paul Morris/Bloomberg

The rollout of new iPhones will test Apple Inc. Chief Executive Officer Tim Cook’s new management team.

Apple also may add finger-sensor technology to the iPhone, along with longer battery life and a speedier processor, according to Brian Marshall, an analyst at ISI Group. The company also is likely to give customers more colors to pick from, he said.

Dark Days

The iPhone maker is also releasing an overhaul of its iOS software, which will include a new music-streaming service called iTunes Radio. Invitations for the event were adorned with bubbles in the colors used in the software update, and included the greeting, “This should brighten everyone’s day.”

The event is Apple’s first major product unveiling since last October, when the iPad mini was released. Since then, Apple has faced criticism about its labor practices in China and use of offshore tax shelters. The U.S. Justice Department successfully sued Apple for antitrust violations related to its sale of electronic books. As the stock slumped, activist investors including David Einhorn and Carl Icahn pressed Cook to return more money to shareholders.

Apple’s share price has slumped 28 percent from a record last September, compared with a 14 percent gain in the Standard & Poor’s 500 Index during the same period. Absent new gadgets, the company’s profit growth has stalled. Net income shrank or remained flat in the last three quarters, and sales rose 1 percent in the latest quarter.

Photographer: David Paul Morris/Bloomberg

A man looks at his Apple Inc. iPhone in front the company's store in Hong Kong, China. Close

A man looks at his Apple Inc. iPhone in front the company's store in Hong Kong, China.

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Photographer: David Paul Morris/Bloomberg

A man looks at his Apple Inc. iPhone in front the company's store in Hong Kong, China.

Pent-Up Demand

The financial results reflect pent-up demand for new gadgets as customers wait for a new wave of smartphones and tablets. Apple shifted a year ago to introducing many of its main products ahead of the year-end holiday shopping season, instead of releasing new iPhones, iPads and Mac computers throughout the year.

Global tablet shipments slowed in the second quarter from the previous three months as consumers put off iPad purchases to wait for a new model, according to researcher IDC. IPhone sales declined 17 percent in the quarter ended in June compared with the prior period.

China Breakthrough

The iPhone remains one of the technology industry’s most successful products, generating $78.7 billion in revenue in Apple’s latest fiscal year. Underscoring the iPhone’s impact on the industry, Nokia Oyj (NOK1V), the former market leader, agreed last week to sell its phone and services business to Microsoft Corp. (MSFT) after years of falling sales. Microsoft has also failed to shake Apple and Google Inc. (GOOG)’s dominance as consumers shift to mobile computing.

Photographer: David Paul Morris/Bloomberg

Customers walk up a staircase inside an Apple Inc. store in Hong Kong. Close

Customers walk up a staircase inside an Apple Inc. store in Hong Kong.

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Photographer: David Paul Morris/Bloomberg

Customers walk up a staircase inside an Apple Inc. store in Hong Kong.

Apple fell less than 1 percent to $504.07 at 9:33 a.m. in New York.

A key part of Cook’s strategy to jump-start growth is a more affordable smartphone. A new iPhone 5 currently costs at least $649 in the U.S. without a subsidy from a wireless carrier, compared with about $250 for an Android device, according to Enders Analysis. A less expensive iPhone selling for about $300 would appeal to prepaid-market consumers, who pay for services in advance and don’t opt for a subsidized phone as part of a multiyear contract.

China Opportunity

Apple could sell 8 million budget devices in the December quarter alone, according to Walter Piecyk, an analyst at BTIG LLC in New York.

“Apple has been missing out on the majority of the wireless market, which is dominated by prepaid offerings that offer no subsides for their most-expensive smartphones,” Piecyk said.

Apple’s biggest opportunity is China, where the world’s largest carrier, China Mobile, doesn’t yet offer the iPhone. While Apple is preparing to ship iPhones to China Mobile, the deal won’t be announced at today’s event, said one person with knowledge of the plans. An agreement with NTT DoCoMo, Japan’s biggest mobile carrier, will also expand the pool of potential iPhone buyers.

Apple’s earlier success with the iPod offers clues for the iPhone’s evolution. As the market for digital-music players matured, the company introduced new models in different colors and designs to appeal to new customers.

Supplier Network

Depending on the price, a less-expensive iPhone may not provide much of a boost to Apple’s profit and revenue, according to Benedict Evans, an analyst at Enders Analysis in London. If Apple sells 50 million iPhones priced at $300, that would increase gross profits by 10 percent, he said.

The release of the iPhone will test Apple’s network of suppliers, including Foxconn Technology Group, Piecyk said. Significant production snags have the potential to harm sales if the wait to receive a device becomes too long, he said. Apple sold more than 5 million iPhones in its debut weekend last year last year.

The rollout of new iPhones will also test Cook’s new management team. Following the release of flawed mapping software along with the iPhone 5 last September, the CEO reorganized his executives in October, resulting in the departure of mobile-software head Scott Forstall.

Apple is also overhauling its mobile software for iPhones, iPads and iPod Touch devices. Apple previewed the iOS redesign in June, including changes to the e-mail, calendar and photo applications, as well as new fonts, icons and a brighter color scheme. The changes were the first to be led by Jony Ive after Cook put him in charge of software design.

The company has posted tutorials on its website and trained its retail staff to help consumers learn about the revamped software, which will be available for models going back to iPhone 4.

“There are going to be some teething pains, but I think it’s going to be wildly popular,” Carl Howe, an analyst at Yankee Group, said of the new operating system.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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