For ex-No. 1, a lot riding on new iPhones and iOS

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For ex-No. 1, a lot riding on new iPhones and iOS

Apple’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, falling stock prices and stepped-up U.S. government scrutiny.

Apple will update its flagship product, adding more colors and a less-expensive model, at an event at its California headquarters yesterday, 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 and Japan’s NTT DoCoMo 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 and others chip away at iPhone sales in an increasingly saturated market.

“Apple needs to both wow existing customers and persuade 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 in San Francisco. “It’s been a long time since they introduced a new product, and the stakes are high.”

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.

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.

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. Sales of iPhones declined 17 percent in the quarter ending in June compared with the prior period.

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, the former market leader, agreed last week to sell its phone and services business to Microsoft after years of falling sales. Microsoft has also failed to shake Apple and Google’s dominance as consumers shift to mobile computing.

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 United States without a subsidy from a wireless carrier, compared with about $250 for an Android device, according to Enders Analysis.

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. Bloomberg
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