Why the 3G iPhone Wins My Support

Includes: AAPL, T
by: Vijay Nagarajan

The 3G iPhone is here - well, almost here! Steve Jobs announced the latest avatar of the iPhone in his WWDC keynote on Monday. Unfortunately for the users and technology enthusiasts, the phone will not be out until July 11. In any case, let us quickly look at the tidbits thrown at us during his talk.

The 8GB 3G iPhone will indeed come with the $199 price tag. Other models are also lower cost than before. This is perhaps an industry changing move by Apple (NASDAQ:AAPL)  which has sought to bring smartphones to the mass market. It has, in the process, also shed the exclusivity tag that accompanies most of its products. The $199 tag is likely below the phone's manufacturing cost. So, it looks like AT&T (NYSE:T) is subsidizing it for us. Besides, I am sure that Apple will make money through the plethora of applications that are lined up for the iPhone apart from the AT&T service contract itself. Essentially, there seems to be a change in its iPhone business model. Apple, while choosing volume over margin with this move, will have to be cautious not to repeat Motorola's (MOT) mistakes with the highly successful, yet unprofitable, Razr line of phones.

The 3G iPhone will be GPS-enabled. This clearly puts gadgets like Garmin's (NASDAQ:GRMN) Nuvifone at a disadvantage. The phone also boasts good battery life. It has five hours of 3G talk-time, 5 to 6 hours of data browsing, 7 hours of video, and 24 hours of audio. Not to mention the highly anticipated enterprise support that will have Research In Motion (RIMM) gritting its teeth.

The 3G data speed demo gave clues about the iPhone's modem capabilities. Steve showed that the iPhone was about 36% faster than the Treo 750 and the Nokia (NYSE:NOK) N95. Nokia's N95 is HSDPA-capable. Palm (PALM) also unlocked the Treo 750 to support HSDPA. (I am still a little hazy about the Treo specs. and would welcome additional information that anyone could provide me on this.) For the uninitiated, HSDPA stands for High Speed Data Packet Access [HSDPA], and is a higher speed data optimized evolution of 3G.

Therefore, discounting any improvements provided by the OS and the browser, the demo suggests that the iPhone has a higher capability HSDPA receiver. A friend suggests that the difference in performance may be because the N95 uses a category 6 HSDPA receiver capable of download speeds upto 3.6 Mbps. The iPhone looks to be having a Category 8 receiver capable of 7.2 Mbps. This does give me clues about the baseband supplier. While multiple vendors including Qualcomm (NASDAQ:QCOM) and InterDigital (NASDAQ:IDCC) have Category 8 receivers, this comparison gives me more confidence that Infineon's (IFX) X-GOLD-608 is central to the 3G iPhone.

The $199 tag is great news to me. I was looking to get the iPod Touch and a GPS device anyways. I will wait for my Sprint (NYSE:S) contract to expire and quickly grab one of these from an Apple store. I am not alone. All of the colleagues and friends who I talked to on Monday were quite buoyant. People who don't have the 2G iPhone are waiting for July 11, and those who paid a high premium for the previous iPhone are still willing to trade theirs in for a newer, sleeker and faster big brother. The 10 million iPhone target will now be a rather conservative estimate.

In summary, the keynote confirmed rumors that a lot of imagined were outrageous. The $199 iPhone is the mother of all deals and is bound to put other smartphone makers in a spot while giving great leverage to AT&T.


[All thoughts expressed here are those of the author's and do not necessarily reflect those of either Atheros Communications or TensorComm Inc.]

Disclosure: None