Is Apple Making Way for the New iPhone?

Apr. 18, 2008 4:34 AM ETApple Inc. (AAPL)12 Comments
Seth Gilbert profile picture
Seth Gilbert

It’s iPhone supply mania, part two.

In late March reports began to spread that Apple (NASDAQ:AAPL) stores around the U.S. were dangerously low on iPhone inventory. Orders at Apple’s own online store were taking 5 to 7 days to fill. Something was amiss. Given mismanaging channel inventory or poorly estimating demand is not a mistake Apple usually makes, the anomaly fueled heavy speculation that we were seeing the beginning of a product shift and not a coincidence. Apple was beginning to clear out shelf space to make way for a new phone model, people guessed.

A few analysts countered that that was unlikely. They suggested the inventory shortfall was more likely the result of parts shortages, or about accounting and revenue recognition. Their argument pointed out there was still ample supply of the phones at retail partners and across the UK, France and Germany. Because shipments to partner stores are recorded as sales and shipments to Apple’s own outlets aren’t, they argued, such an inventory alignment made good financial sense. It was a way for Apple to record more sales.

Now two weeks later, conspiracy theorists have another sign to point at: it seems the European carriers with those ample supplies are cutting their prices. In Germany, T Mobile cut its fees from 399 Euros to just 99. (That’s a drop from about $630 to about $155). In the UK, 02 cut their prices from £269 to £169. Both promotions run through June - which coincidentally, is the month widely expected to birth the next generation phone. Is it really about accounting? You have to wonder.

Limited supply at US Stores? Discount to accelerate sales through June in Europe? …That does sound like inventory management. It sounds like they’re trying to get rid of the old to make way for the new.

If a 3G phone is on the way, technical elements regarding the chips would further support that.

EDGE iPHONE 1.0 vs. a 3G iPHONE 2.0
Though a source of heavy initial criticism, on the current version of the iPhone, Apple chose to use a slower data transmission standard called EDGE. The standard, as the full spelling of the acronym translates (Enhanced Data Rates for GSM Evolution), is built on top of GSM, a second-generation mobile technology. It was an intermediary step and it’s not as fast as third generation (3G) services.

In specifics, performance wise, the EDGE service supports a max speed of just under 500kbps per radio channel. That translates to max data download speeds of between 100 and 200kbps in places where there’s a strong signal. Average download speeds run 70Kbit/sec. to 135Kbit/sec.

Third Generation, or"3G," is a basket name that houses a number of different mobile standards. These include things High Speed Uplink Packet Access-enabled network [HSUPA], Universal Mobile Telecommunications System [UMTS], EVDO and High Speed Downlink Packet Access [HSDPA]. It’s a mess of techno jargon, and often confusing, but the key upgrade is speed.

In contrast to EDGE, depending on which elements are used, the slowest possible 3G setup is still faster by a little. And with some more sophisticated implementations, it’s like the hare to the tortoise with multi-megabit speeds a possibility. AT&T’s (T) US Network, as an example, is built around UMTS/HSDPA and promises download speeds of 600Kbit/sec. to 1,400Kbit/sec. and upload speeds of 500Kbit/sec. to 800Kbit/sec. Some European carriers are further ahead with implementations expected to eventually pass data at as much as 7.2Mbps downstream.

All that speed comes with a consequence – power consumption. Older 3G chips were battery hogs and large. As Apple’s Steve Jobs explained when the first phone was launched:

“When we looked at 3G, the chipsets are not quite mature, in the sense that they’re not low-enough power for what we were looking for. They were not integrated enough, so they took up too much physical space. We cared a lot about battery life and we cared a lot about physical size. Down the road, I’m sure some of those tradeoffs will become more favorable towards 3G but as of now we think we made a pretty good doggone decision."

For the first version of the phone, it was a simple matter of design constraints. Apple’s emphasis was on a form factor that didn’t allow a larger footprint (e.g. a larger battery). And using a smaller battery at the expense of a short battery life wasn’t an acceptable tradeoff.

Apple also probably took into account the fact that partner AT&T was still rolling out its 3G network in the US. (AT&T announced plans to expand their third-generation (3G) broadband service to more than 80 additional cities throughout 2008 in February. The roll out will require building upwards of 1,500 new cell locations nationwide).

Going with Edge gave Apple the widest possible consumer market to sell to (more access to EDGE than 3G) and it allowed them to make a more consumer friendly phone (smaller, more talk time, better power performance, etc). Even in the face of criticism, it was probably an easy choice.

For a second generation iPhone, it’s a different game. For one thing, there’s the global market to consider. 3G services border on ubiquitous in the European market. Some consider it a requirement for success in some parts of Asia as well. Unlike the first version, which was aimed heavily at the U.S., in a global market it would be 3G that opens the door to the widest possible pool of customers.

Newer “more mature” 3G chipsets are also a game changer. Unlike their predecessors, they reportedly draw less power. Another bonus, they bundle more features into a single chip translating to a smaller footprint. One model from Infineon (IFX) that has been the subject of recent iPhone speculation supports 7.2Mbps HSDPA and at the same time, bundles in a higher resolution camera, 5 mega-pixels instead of a 2 alongside other features like MPEG/H.263 hardware acceleration and video telephony.

[According to DigiTimes, Chinese paper Economic Daily News confirmed that this chip, the Infineon S-GOLD3 will be in the next iPhone and United Microelectronics Corporation (UMC) was selected as the foundry that will produce the chip on Infineon’s behalf.]

If Infineon doesn’t have the deal, alternate chips from Broadcom (BRCM) announced in October 2007 similarly promise broad features and lower power consumption on a single chip.

There’s another perk to the Broadcom chip (and I believe also the Infineon) and it supports the argument the old phones are currently being phased out: these new chips are compatible with EDGE networks and HSUPA, HSDPA 3G networks. They are backward compatible; they have the intrinsic ability to run on the fastest available network.

With a phone built around one of these new chips, there’d be no need to retain an EDGE-only model. That seems like yet another hint that current shortages and price cuts are an inventory phase-out of iPhone 1.0 to make way for its newest reincarnation.

This article was written by

Seth Gilbert profile picture
Seth Gilbert is the founder and editor of (, a business blog and website focused on the convergence of media, entertainment and technology. From music, to movies, from gaming, to publishing, the site covers the affairs of private and public companies. It’s a survey of things just starting and things winding down, a look at significant transactions and events that could have an impact tomorrow. Metue is as much about connecting the dots as it is about reporting them. Prior to starting Metue, Seth held senior business development, strategy and product marketing roles for Silicon Valley start-ups and in the Venture Capital industry. In addition to Metue, Seth provides strategy and business development consulting services. He can be contacted through the pages on (

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