On Tuesday, Apple CEO Steve Jobs delivered his annual keynote address at the 2007 Macworld Conference and Expo. Unlike the company's own summer developer conference, the January conference and exhibition manged by IDG -- which is usually one week before the massive consumer electronics (CE) show, CES, in Las Vegas -- is used to highlight Apple's major new consumer products. For example, at Macworld in 2005, the company introduced the first-generation iPod Shuffle and Mac Mini. The iPod mini came out a year before. In 2002, consumers were introduced to the second-generation iMac and version 1.0 of iPhoto.

This year, the story of the show was Apple's iPhone, a combination cell phone, iPod, and handheld computer that runs the company's PC operating system, Mac OS X (click here for the official release). While most of Jobs' keynote focused on the iPhone, he also revealed some other interesting company details and another product announcement. in this note, we will first look at the iPhone and then examine the related announcements.

[Note: To see the keynote in its entirety, click on this iTunes Store link; the download is over a gigabyte, but free.]

Enter the (not yet finished) iPhone

For months, the rumor of a soon-to-be-revealed Apple mobile phone had been a constant source of discussion at sites that cater to discussing Apple and CE gadgets. For the keynote, Jobs revealed that:

• The iPhone is a "revolutionary and magical product." That's Jobs' opinion, of course, but the CEO was certainly enthusiastic about the iPhone, comparing its importance to the launch of the Macintosh PC line and the iPod portable music player family. To match the CEO's on-stage hype, the iPhone will have to be extremely successful.
  
  
• The iPhone's most notable features are its touchscreen interface and built-in iPod functionality. The Apple mobile phone has a (relatively) large touchscreen that is used to control almost all its functions. Besides being a phone, the device is also an iPod. It offers more advanced features than the current, top-of-the-line video-capable iPod (though far less storage). As with most other cell phones, it includes an integrated camera (2 mega pixel).
  
  
• Touch is the primary user input method. As mentioned in the previous bullet, the touchscreen is one of the iPhone's most defining features. Nearly the entire front of the device is a high-resolution touchscreen. It's screen is bigger than a video iPod (480x320 pixels for the iPhone; 320x240 for an iPod). But graphics and images will be much sharper on the iPhone, as its resolution is 160 ppi. For text, Apple is promoting a "soft" keyboard -- basically a keyboard image linked to the touchscreen. Software will try and help a clumsy typer by suggesting words or phrases as the user is typing.
  
  
• The two models are determined by the flash memory size. Like most iPods, the two models are determined by their storage capacity. As with an iPod nano, the primary storage for the iPhone is Flash memory. Consumers can choose a 4 or 8 GB version.
  
  
• The iPhone is just a bit taller than the 30 GB iPod. If you want to know what the iPhone will feel like in your palm, simply grab hold of a 30 GB iPod. The iPhone has almost identical dimensions, except that it is slightly taller. The iPhone checks in at 4.5 inches tall, 2.4 inches wide, and .46 inches thick. It weighs 4.8 ounces. A 30 GB iPod is a little shorter at 4.1 inches tall, but is also 2.4 inches wide and weighs 4.8 ounces. It is a tiny bit thinner, too, at 4.3 inches.
  
  
• Three sensors add some automated capabilities. Apple engineers embedded an accelerometer into the iPhone to enable the device to automatically change the screen from portrait to landscape mode depending on how the device is held. A proximity sensor is used to shut off the screen and touch input to save battery life and avoid unintended activation of the device while holding it up to an ear as a phone. Finally, an ambient light sensor samples the light environment and tweaks the screen for optimal viewing in current conditions.
  
  
• It runs Mac OS X and includes apps for browsing the Web, email, and photo management. The fact that the iPhone runs Mac OS X (at least a slimmed down version) was a major surprise. But that underlying software base will allow Apple to develop iPhone software with its existing xCode development tools (it is still unclear if third-party developers will be able to code and load software for the iPhone). Form the various keynote and media demos, the devices offers numerous applications, including a contact book, a version of Apple's Safari Web browser, a slimmed down version of its iPhoto app, and various communication programs, including email software.
  
  
• It's a GSM phone that does not do 3G ... yet. The phone uses GSM and EDGE technology for cell and wireless Net access. While it will not be capable of using 3G, high-speed wireless connection, it does have integrated Wi-Fi capability. Finally, as with most mid- to high-end phones, it offers Bluetooth capability for using such accessories as wireless headsets.
  
  
• It will arrive in the US in June. For many Apple fans, the excitement of the iPhone was dampened by the fact that it will not be unavailable until June (Apple choose to pre-announce the device because its specifications would have been made public when it was submitted for approval by the FCC). In the US, a two-year exclusive deal with Cingular -- soon to be renamed AT&T -- will mean that consumers can only get the phone as part of that service (Cingular is the largest mobile phone company in the the country). Europeans will get their chance to buy an iPhone in late 2007, but those in Asia will have to wait until 2008.
  
  
• The first iPhones will cost at least $500 and requires a two-year contract. As noted above, the two versions of the iPhone are based on their memory size. Apple says the 4GB model will cost $499 and the 8 GB model will cost $599 (all prices are in US dollars). For comparison, a 4 GB iPod nano costs $199; an 8 GB model is $249. The only video capable iPods, the full size products, start at $249 for a 30GB model (the video iPods us a hard drive for storage). The final details on the service-aspect of the iPhone are not yet none, so the terms of the Cingular contract and the cost of unlimited data access are still a subject of intense speculation.
  
  

While those are the highlights of the iPhone announcement, visit the Apple iPhone site for more images and details.

A new name, Apple TV, and continued ITS success

The iPhone wasn't the only important item revealed during the keynote. Other issues of importance include: 

• A name change takes the computer out of Apple, but not Macs from the product mix. Jobs announced that the company would change its name from Apple Computer, Inc. to Apple, Inc. The name change reflects the changing product mix in the company. With iPod and iTunes content contributing significant revenue, and with more consumer electronic products, such as Apple TV (see below) and the iPhone coming soon, the truncated name simply makes more sense.
  
  Changing the name, however, does not mean Apple is abandoning the computer market. Its consumer products have too much synergy with its computer offerings (for example, the iPod ecosystem of a device, the iTunes software, and a Mac or Windows computer). It also continues to invest in consuemr and business systems, server hardware, and a wide variety of computer applications, such as iLife, iWork, and professional tools like Aperture and Final Cut.
  
  
• A new set-top -- called Apple TV -- that delivers content to TVs and home theater systems. Steve Jobs announced the wireless set-top box back in the fall, calling it by its code name of iTV. At yesterday's event, he announced its official name (Apple TV), the first-generation features (802.11n wireless and wired connectivity), availability (February), and confirmed its price ($299). The box, designed to link computer (Macs or PCs running iTunes) video and audio content to TVs and surround sound systems, enables Apple to provide its own solution to the PC content distribution issue. See this Apple link for more detailed information on the product.
  
  
• The ITS has served over 2 billion songs and 50 million TV shows. Apple reported the company has now sold over two billion tunes on the iTunes Store (ITS). It also announced 50 million TV shows and 1.3 million movies sold (and there have only been a handful of Disney movies available for sale). Apple announced that some of the Paramount back catalog will be made available, so the movie numbers should increase, although they will most likely not mimic the rapid growth in music or TV shows until more movie content is available.
  

Not much talk about Leopard and consumer Macs, but big news coming soon

As we mentioned, Apple is not ditching the Mac. It still makes billions from its computers and continues to invest heavily in Mac OS X-specific software. What the absence of Mac hardware and software announcements means is that Apple executives wanted to focus on industry changing products, which the iPhone represents.

Those looking for Mac hardware and software announcements will have plenty to get excited about in the next six months. The next-generation Mac OS X, code-name Leopard, is due out in the spring, and updates to the iLife and iWork suites are most likely also on their way in this or the following quarter. We expect Apple to try and deflate some of the media coverage of Microsoft's launch of Windows Vista late this month by releasing details on new hardware and software.

By: Tom Rhinelander, NRG Analyst