Electronics Manufacturing – M528

An analysis and Market Value Forecast of Apple's iPhone


(Eliya, January 2007, iPhone at Macworld)


Apple's latest product, the iPhone, is a multimedia device, with wireless internet capabilities, all incorporated into a hand held mobile phone. Its functions include; a camera, multimedia player, mobile telephone, email, text messaging and web browsing. The user interface of the iPhone is considered revolutionary by its creators. It allows the user to interact with the phone via a touch screen input, with what has been dubbed "MultiTouch" technology. This allows the user to use more than one finger to carry out operations on the phone, such as pinching fingers together on the touch screen to zoom into a picture. All in all, Apple filed for more than 200 patents related to the iPhone's technology (Wikipedia, n.d., iPhone).

The Technology

The Touch Screen:

For the iPhone's touch screen interface, it appears that Apple have looked to the MicroTouch (tm) ClearTek (tm) II Capacitive Touch Screen (3M.com, n.d. MicroTouch (tm) ClearTek (tm) II) to fulfill its needs, as this technology would provide a solid base for them to further develop their MultiTouch technology. Made by a company named 3M Touch Systems, the ClearTek (tm) II screens are coated with a thin conductive material, which is in turn electrically charged to create a controlled capacitor. The device is sensitive only to other devices that have their own capacitance (such as the human finger), and the device detects when contact is made by variations in the capacitance field (Wikipedia, n.d., iPhone). This means that it is harder for accidental touches to occur, as objects such as a stylus do not exhibit capacitance, so therefore would not affect the capacitive field of the screen.

The Sensors

The iPhone has three sensors to detect several different motions or proximity. Its proximity sensor detects when the user puts the iPhone up to their ear, and when it senses this, it turns the display and touchscreen off, allowing for prolonged battery life and eliminating accidental touches. There are also two more sensors on the iPhone, an ambient light sensor, and an accelerometer. The ambient light sensor detects when the phone is in brighter/darker areas and adjusts the screen brightness accordingly, thus saving battery power. The accelerometer senses the orientation of the device (vertical or horizontal) and changes the screen to match the orientation. However, the accelerometer is only effective in 90 degress, meaning that you can only tip the phone in one direction (Wikipedia, n.d., iPhone).

The Internet

The iPhone has a built in WiFi, which allows it to access the internet using Apple's Safari web browser. It also has the functionality in place to connect to the US cellular phone provider Cingular's EDGE (Enhanced Data Rates for GSM Evolution) network. The browser will show the full web page, as if you were viewing it on a desktop PC, rather than the cut down version you often see on other 'Smart' phones.

Mac OS X

The iPhone's operating system will be a full and optimized version of the Mac's OS X (with unnecessary components removed). This allows the iPhone to utilise the Widgets that mac users have
become familiar with, allowing added functionality in an additional module added to the operating system (example given at the MacWorld conference 2007, was the Apple stocks and shares viewer) (Jobs, S. January 2007, MacWorld San Francisco 2007 Keynote Address).

Comparisons to Other 'Smart' Phones


A 'Smart' phone is a full featured mobile phone with personal computer like functionality (Wikipedia, n.d., Smartphone). It is becoming increasingly difficult to define what a smart phone actually is, as they are often quite simply just high-end mobile phones. Their features tend to include Internet access, email, scheduling software (to allow multi tasking), a camera, contact management, and some form of navigation software. Also, other desired features are considered to be the ability to access documents of all types (from PDFs to MS Word Documents).

Operating Systems

There are several operating systems used in 'Smart' phones, the following are the most common ones:

This graph (WindowsForDevices.com, July 2005, Mobile Phone market to hit 1 billion units in 2009) shows the spread of the operating systems in 2005:

(WindowsForDevices.com, July 2005, Mobile Phone market to hit 1 billion units in 2009)

The limitation of this graph is that, according to the article referenced (WindowsForDevices.com, July 2005, Mobile Phone market to hit 1 billion units in 2009), the data may be slightly skewed by the fact that Windows-based Pocket PC Phones are not taken into account. However, this does show that there is a massive bias towards the Symbian OS for mobile phones. Apple's decision to use OS X as their operating system, adds an extra OS to this list, however it is for exclusive use in Apple's products, therefore we won't see a large branch of products with Mac OS X as their operating system, making it a rather unique product.


This table (Wikipedia, n.d., iPhone) compares the most popular smartphones on several criteria:
ModelOSSizeWeightScreen resolutionKeyboardCameraOther
Apple iPhoneMac OS X81cc135g320x480Soft2mpAccelerometer
HTC P3300Windows Mobile105cc130g240x320Soft2mpGPS
Motorola RIZR Z8Symbian OS77cc112g240x320Numeric with T92mp
Nokia 5500 SportSymbian OS87cc103g208x208Numeric with T92mpAccelerometer, heart rate features
Nokia E61iSymbian OS114cc150g320x240Full Qwerty2mp
Nokia E90 CommunicatorSymbian OS150cc210g800x352 & 240x320Full Qwerty and Numeric with T93.2mpGPS
Nokia N95Symbian OS110cc120g240x320Numeric with T9, Multimedia5mpGPS
Palm Treo 700pPalm OS 5151cc180g320x320Full Qwerty1.3mp
RIM BlackBerry PearlBlackberry OS77cc90g240x260Numeric with SureType1.3mp
RIM BlackBerry 8700cBlackberry OS149cc134gFull QwertyNo
RIM BlackBerry 8800Blackberry OS105cc134gFull QwertyNo
Samsung SGH-i607 BlackJackWindows Mobile76cc106g320x240Full Qwerty1.3mp
Sony Ericsson P990Symbian OS162cc150g240x320Full Qwerty, Numeric with T9, Soft2mp
Sony Ericsson W950iSymbian OS86cc112g240x320Numeric with T9, SoftNo

(Wikipedia, n.d., iPhone)

From this table, we can see that The iPhone has an advantage over most of the other smart phones in several of the categories. It is one of the smallest, with a software keyboard as opposed to a hardware qwerty keyboard, an average 2mp camera, a unique operating system and the added features of the sensors it houses within the phone.

A Look at the Mobile Phone Market

The first mobile phone to reach the market was the DynaTAC 8000X from Motorola. It was released on 6th March, 1983. Over the next 15 years, $100 million was invested in research, development and expansion of the cellular phone technology. The DynaTAC 8000X Weighed 785g and its dimensions were 300x44x89mm, ridiculously large by today's standards. It had a battery life of one hour talk time, and eight hours stand-by time. In 2007, phones are much more sophisticated than this, and they weigh around an average of 100-150g, with dimensions around 100x60x30mm, miniscule in comparison to the 'dinosaur' DynaTAC 8000X. They also have a battery life of around eight hours talk time, and roughly seventy-two hours stand-by time. This shows just how much the technology has evolved, and brought the mobile phone more into the mainstream, rather than it being a status symbol for the "rich," as the DynaTAC 8000X was (BBC.co.uk, July 2003, DynaTAC 8000X - the World's First Mobile Phone).

Gartner for Mobile Terminals (2005) produced an article suggesting that the mobile phone market would surpass 1 billion units by 2009, with the 'Smart' phone market growing to around 20% of that number, at 200 million by 2008. The following graph (WindowsForDevices.com, July 2005, Mobile Phone market to hit 1 billion units in 2009) shows Gartner's forecast for the market to 2009 (produced in 2005):

Mobile Phone forecast to 2009

Unit shipments of "mobile terminals"

(WindowsForDevices.com, July 2005, Mobile Phone market to hit 1 billion units in 2009)

Gartner also suggests that 'Smart' phones are the fastest growing category of mobile phone sales. Roberta Cozza, principal analyst at Gartner (2005) suggested "We expect them ('Smart' phones) to double year on year to 2006" (WindowsForDevices.com, July2005, Mobile Phone market to hit 1 billion units in 2009). According to the figures Steve Jobs presented at the MacWorld Keynotes Conference in January of 2007, the 2006 sales of Mobile phones are at the 957 million mark (Jobs, S., January 2007, Mac World San Francisco 2007 Keynote Address), meaning that the estimate in this graph is about 100 million shy of this figure. If the industry continues its steady growth of roughly 20% growth over the year, the estimate of 1 billion sales by 2009 may well be reached a whole 2 years earlier, by the end of 2007.

However, according to ElectricNews.net (ElectricNews.net, April 2007, Nokia plunders Motorola's market share), in the first quarter of 2007, growth in the industry has considerably slowed down. A total of 252 million handsets were shipped worldwide in the first quarter of the year, which is a 12% increase on the same period in 2006, according to Strategy Analytics. This is a rather large step down from the industry standard (over the last two years) of being above 20% growth (ElectricNews.net, April 2007, Nokia plunders Motorola's market share).

Steve Jobs, Apple CEO announced at the MacWorld Keynotes Conference that he estimates to have sold 10 million iPhones in 2008, a 1% market share of the 2006 mobile phone sales figures of 957m (Jobs, S., January 2007, Mac World San Francisco 2007 Keynote Address). This is a reasonable estimate, however, Apple's limitations of selling the phone on a two year contract basis, from only one US cellular phone network provider, coupled with the reduced rate of growth in the mobile phone industry, may prove that this is a hard target to meet.

Cost and Demand

Apple plan to release two versions of their iPhone, the first being a 4GB model, priced at $499, and the second, an 8GB model retailing at $599 (just $100 more to double the capacity) (Jobs, S., January 2007, Mac World San Francisco 2007 Keynote Address). These prices are both based around a two year contract with US mobile phone network supplier, Cingular. However, in the UK, consumers have come to expect that for a long-term contract, mobile phones in the same price range ($499 = £248.81, $599 = £298.69) (conversions carried out with the xe.com converter) will be offered free with the contract. If Apple plan to release the iPhone on a similar basis in the UK, it's not certain that the market will take to it well, as it would be viewed as a rather large sum of money to pay, when you can get a similar product for free (on a contract basis).

The demand for the iPhone is relatively high, however, the decision by Apple to restrict it to Cingular (due to its multiple year deal with them) means that most U.S. wireless users will not get the chance to buy one. After copious amounts of pressure from Cingular, Apple agreed to shrink the iPhone's potential market by 25 million T-Mobile subscribers, and cut out the development of a model for use on the Sprint, Verizon and Alltel networks (Segan, S., March 2007, The iPhone: Mac or iPod). Sascha Segan ( a writer for the US's PC Magazine) estimates that there will be some hackers that will unlock the iPhone to make it sim-free, and then sell the devices on e-bay for an extremely inflated price (now legal thanks to a recent copyright office ruling), however the market for these will be significantly small, and limited to those with large sums of money and a lust for anything Apple (Segan, S., March 2007, The iPhone: Mac or iPod). Segan also suggests that if the iPhone stays locked to cingular, blocks out the developer community and stays closed minded, it will not reach the market share estimated.

According to Phil Carson, iSupply.com estimates that the price stated for the iPhone, gives Apple a 50% margin. A survey carried out by Compete Inc. identified iPod shoppers in December, and asked them of their awareness of, interest in, and likelihood to purchase the device. The survey found that 75% of those surveyed had heard about the iPhone, 26% were likely or extremely likely to purchase it, and that only 1% of the survey would pay more than $500 for it. It also concluded that 42% of the survey said that if the price was reduced to between $200 and $300 (significantly reducing Apple's profit margins) it would convince them to change carriers and go with Cingular, just for the iPhone (Ryan Burke, January 2007, Are Consumers Ready (To Pay) For The iPhone?).

iPhone Carrier switchers

(Ryan Burke, January 2007, Are Consumers Ready (To Pay) For The iPhone?)

Another analyst, Charles Wolf (of Needham and Co.), predicts that by the year 2016, the iPhone will see annual sales of 134 million, approximately 7% of the estimated 2 billion unit-per-year forecast for the entire mobile phone market (Marshal, K., January 2007, iPhone cost expected to decline 20 percent annually). The following table shows Wolf's estimates for the next ten years:

iPhone Forecast

(Marshal, K., January 2007, iPhone cost expected to decline 20 percent annually)

The figures in this graph suggest that Apple will reach their 10 million unit target for 2008, and after 2008, sales will increase greater each year, whilst the price of the iPhone itself will fall by around 20% annually.

A massive competitor to the iPhone will be seen in the form of the Ocean from a relatively new company, Helio. The Ocean offers similar functions to the iPhone, at a greatly reduced price of $295, without being tied to a 2 year contract with Cingular. The Ocean also utilizes more modern wireless network communications, and offers GPS functionality from your phone, as well as the ability to find your "buddies" who use the Ocean on a GPS map (Martellaro, J., April 2007, New Mobile Phone Technology Leapfrogging iPhone). Helio plans to release the Ocean in the US in spring of 2007, already beating Apple to the mark with the iPhone's end of June US release date.

Future Technology

Currently in development for use in the US, is a new wireless technology called Evolution-Data Optimised (EV-DO). This technology means that Apple's decision to use Cingular's Enhanced Data Rates for GSM Evolution (EDGE) notwork, is rapidly becoming outdated. EDGE offers transfer rates of 75 to 135 Kbps, whereas the new EV-DO network outputs a staggering 450 to 800 Kbps, a six-fold increase in data rates, making EDGE almost redundant in the presence of EV-DO. This means that the iPhone will have to rely on WiFi access points for anything other than phone calls, email and SMS due to the large amount of data transfer required for Web access (Martellaro, J., April 2007, New Mobile Phone Technology Leapfrogging iPhone).

Even the EV-DO network is becoming outdated before it even reaches the US market. WiMAX, which is a 4G technology, is capable of transfer speeds of around 100Mbps, a staggering increase on EV-DO's 800Kbps maximum. It is also very inexpensive compared to current networks in place, and companies such as Intel, Sprint and the European Union are all backing the research into this technology (Martellaro, J., April 2007, New Mobile Phone Technology Leapfrogging iPhone).

The use of GPS in phones is now becoming more widespread, the new Helio Ocean will be implementing GPS, and the ability to find your friends on the GPS system (if they are using the Ocean also). While some may argue that this is an invasion of privacy, others may argue that this addition of existing technology to the consumer market, allows for alot of daily tasks to become easier and more feasable. The iPhone neglected this part of the market, and in doing so, may have bypassed a significant section of the 'Smart' phone market. However, it could also be seen that the iPhone has appealed more to those who feel that the GPS introduces invasion of privacy.


In summary, Apple have found several innovative ideas, which allow it to continue its success in the functionality and general good looks category with the iPhone. I believe that Steve Jobs' estimate of 10 million iPhones to be sold in 2008 is not as far-fetched as it seems, with all the innovations and functionality that appeals to the business user, as well as the home user, this target is a reasonable and reachable marker. However, with their agreement with Cingular, Apple have greatly restricted their market, and have possibly reduced their sales by keeping the iPhone on a two year contract with only one specific carrier. Also, Apple's neglect for the up-coming technologies that allow for a significant increase in data transfer rates, in favour of Cingular's (now out-dated) EDGE network, means that the iPhone will appear sluggish when compared to some of the more significant competitors being released even before the iPhone is due to reach the US market. If Apple were to look toward this new technology, it may see it's potential sales figures increase significantly, as the world has become accustomed to the fast speeds of Broadband internet, and will see the lack of speed currently used in the iPhone as a step back in time. I also feel that if Apple were to reduce the price of the iPhone to around $350-$450 instead of the $499-$599 price tag it currently holds, it would greatly open up the market to people who are willing to switch carriers at a reasonable price. I agree with the predictions made by Wolf, that the iPhone's sales will continue to inflate as the price falls, however I do not agree that the sales will reach the figure of 135 million sales a year. By 2016, there will be newer, more modern phones on the market, offering newer technology and better functionality, possibly even from Apple itself, as it has been suggested that the iPhone is just a stepping stone for Apple to breach the mobile phone market. Further, if Apple were to open up the iPhone to all of the available US networks, it would possibly see that it could quite quickly become the leading 'Smart' phone in the US, as being locked to one network doesn't settle too well with the American population.