iPhone SDK Release Around the Corner

Any day now, Apple (Nasdaq: AAPL) is expected to release a developer's kit that will allow independent programmers to create new applications for the device. While it is common for mainstream PC users to download third-party programs to their computers, it is relatively uncharted territory for average cell phone users to do the same, observed American Technology Research analyst Shaw Wu.

Apple's kickoff will follow on the heels of Microsoft's (Nasdaq: MSFT) announcement this week of a software giveaway campaign that will unlock high-end developer tools used to create everything from games to cell phone programs to millions of college and high school students around the world.

Boosting Sales?

"It's going to make the platform more attractive, no question," Wu said of the iPhone. What is unknown, he said, is whether the new applications will boost iPhone sales.

The move will give the device -- a combination of telephone, multimedia player and WiFi gadget -- an array of new features, from games to better ways to sync it with corporate e-mail accounts. It could eventually help make the iPhone Apple's iconic product, unseating the iPod as consumers increasingly embrace smartphone devices.

"I think the phone portion will be reduced as a service on these cool devices. You won't be buying it because it's a phone," said Jim Grossman, an equity analyst at Thrivent Asset Management in Minneapolis. "I call it a mini-computer."

Even without Apple's technological road map for the iPhone, there already are some 300 "underground" applications created for the device, a powerful indication of interest among code writers to join its universe, said Yankee Group analyst Andrew Jaquith.

"You will see a lot of them move real quickly to the new environment, and you'll see mainstream software companies jump in, too," he said. "This is going to be big news. We are going to see some amazing mobile applications."

Fear of Viruses

The company had put off offering the tools to developers for fear it would expose iPhone users to piracy and viruses, Apple chief executive Steve Jobs has said.

An iPhone software update in September disrupted service for iPhones rejiggered to work with a cellular carrier other than AT&T (NYSE: T) or loaded with non-Apple applications. The move angered some users and triggered two class action lawsuits. Apple and its telecommunications partner AT&T were accused of illegal monopolistic actions.

Now, the new tools "will allow developers free rein to develop applications that won't be killed by Apple during regular updates," Grossman said.

He and other analysts see a plethora of applications rolling out in quick succession -- new games, applications that create "to-do" lists and VoIP, or Voice over Internet Protocol.

An Application Catalog?

A VoIP feature will be of particular interest to business travelers who don't want to pay AT&T roaming charges when they are working overseas. "It can be ruinously expensive," Jaquith said.

It is unclear whether Apple will set up some sort of applications catalog page through its online store iTunes, the way it does now with podcasts. The Cupertino company also could charge fees to developers that want Apple's official stamp of approval.

"Most applications will need to be 'signed' by Apple so when you load it on the phone, you know it's a genuine application," Jaquith said.

Last year, Apple sold 4 million iPhones, though Wu believes as many as 1.5 million have been "hacked" and are not running on authorized carriers. He said iPhones are being used in as many as 40 countries, although the device at this time is supposed to be used only in the United States, the United Kingdom, France and Germany.

Eventually, Wu said, the iPhone will become Apple's signature product.

"Over time, that will happen," he said. "But it's probably not going to happen for at least a couple of years."

An 'Overly Punished' Stock

The iPhone is a much pricier product than the iPod -- its low-end 8-gigabyte model is twice as much as the popular 8 GB iPod touch. The iPhone also requires an AT&T service plan.

The new iPhone applications may not excite investors, who are worried that the nation's credit crisis and economic slowdown will dampen Apple's sales. The company's stock price has dropped about 40 percent since the beginning of the year, far below the 52-week high of US$202.96. On Wednesday, shares of Apple closed up 1.3 percent, or $1.64, to 123.82.

"The stock has definitely been overly punished," Grossman said. "I don't know if there is a company out there that has the ability to take shares in a market better than Apple."

However, Wu said investor jitters are justified.

"It's the economy," he said. "It's a tough environment. Even companies with the best products are not immune to these bigger issues."