Crowds Turn Out For Lastest Version Of Apple's IPhone

Apple Inc. (AAPL) unveiled Friday its latest iPhone to healthy-sized lines at its flagship stores on both U.S. coasts.

The release of the iPhone 3G S, the third version of Apple's popular smartphone, comes amid rising competition in the smartphone market. However, early reports of strong iPhone pre-orders and steady streams of customers into Apple stores suggest consumer interest in the iconic smartphone remains high.

In general, the lines were calmer this year than in the past and proceeding at a good pace. Early purchasers said the phone's activation - which had hampered previous iPhone releases - was quick and painless Friday.

Piper Jaffray analyst Gene Munster predicted earlier this week that Apple would sell 500,000 new iPhones this weekend, which would be less than the million 3G versions sold last year on its launch weekend. The difference is that the new 3G S is being released in fewer countries and offers less dramatic changes, Munster said.

RBC Capital analyst Mike Abramsky had similar numbers, projecting between 500,000 and 700,000 shipments of the new 3G S over the first weekend, down from the 1 million 3G shipments last year.

Apple declined to comment. A spokesman for AT&T, the sole iPhone service provider in the U.S., said the phone giant had sold "hundreds of thousands" of new iPhones through its preorder process before the launch, exceeding its expectations.

AT&T shares, however, are not reacting to the news, down four pennies to $24.09. The stock, down 15% this year, has been relatively flat this month.

On the other hand, Apple shares - up 59% in 2009 through Thursday - are adding 2.2% to $138.90 Friday.

The newest iPhone includes, among other things, a faster processor, which makes downloading information quicker; at least twice as much memory; a sharper camera; and the ability to record video. The iPhone 3G S is priced at $199 for 16 gigabytes of memory and $299 for 32 gigabytes.

Apple continues to sell its previous iPhone, the 3G, but lowered the price to $99. That phone comes with eight gigabytes of memory.

Len Tannenbaum waited 25 minutes to buy his first iPhone in New York Friday after hearing his friends praise previous iPhones. The 48-year-old went with the 16 gigabyte version because he wanted to have enough memory for video and music. The computer technician and longtime PC user said he eventually may switch to Mac computers, based on his experience with the iPhone.

Management consultant Matthew Mascari was drawn to the new 3G S because of its speed and because "my old iPhone died, so I didn't have a choice." The 25-year-old waited a half-hour in line at the Apple store on Fifth Avenue in New York.

At 11 a.m. EDT, 64 people were in the iPhone reservation line at the Fifth Avenue store, waiting to pick up their preordered iPhone, while 35 others - without such a reservation - waited to get into the store.

In San Francisco, meanwhile, lines lasted for an hour, and Apple store employees were passing out snacks of trail mix and bagel bites.

Alan Yan, who works in the information technology industry, said he is going to give his current iPhone to his father and buy a new one.

"It's everything the iPhone should have been on day one," Yan said.

In both locations, the lines were said to be shorter than a year ago, when the 3G version was launched, and more subdued.

Overall, Apple has sold more than 21 million iPhones in the past two years. The phone's popularity is due, in part, to its touch screen, smooth user interface and rapidly growing App Store, which includes 50,000 software programs and enhances the phone's ability.

In recent months, Apple has faced rising competition. For example, Palm Inc. (PALM) last month introduced the Pre, a touchscreen smartphone with a pull-out keyboard that many have compared favorably to the iPhone. In addition, Research In Motion Ltd. (RIMM) has established its own application store.

Thursday, on RIM's earnings conference call, co-Chief Executive Jim Balsillie said the recently launched BlackBerry App World is seeing tremendous interest, with 15 million downloads of social-networking programs, like Facebook.

-By Ben Charny and Jerry A. DiColo, Dow Jones Newswires; 415-765-8230; [e-mail]