Apple iPhone 4S Heads for Solid Release But Users are Underwhelmed

Apple Inc. took the wraps off the sequel of iPhone 4, called the new iPhone 4S, at its Let's talk iPhone event Tuesday.

Despite the public, which was anticipating the iPhone 5 being disappointed, the next-generation iPhone 4S boasts a faster A5 processor, improved antenna design, world phone roaming and the new Siri voice recognition functionality.

The product will be available for existing U.S. partners, AT&T and Verizon, as well as the a new one, Sprint. T-Mobile's addition is likely being delayed due to the pending AT&T acquisition.

Pre-orders for iPhone 4S will start on Oct. 7 and will be available on Oct. 14 in the U.S., Canada, Australia, United Kingdom, France, Germany and Japan. In Japan, carrier partners include Softbank and now KDDI.

The iPhone 4S will be attractively priced (including a two-year contract agreement) with storage capacities of 16GB for $199, 32GB for $299 and 64GB for $399. The current iPhone 4 will become the lower-end model for $99, available in 8GB capacity only along with the 3GS, which will now be free.

The features of iPhone 4S include the latest iOS 5 operating system, iCloud, an A5 dual-core processor found in the iPad 2, an 8-megapixel LED flash camera with 1080p HD video recording, secondary VGA camera for video chat, Siri voice-recognition functionality, world phone, retina display and Bluetooth 4.0 wireless technology.

The general public response for the launch of the iPhone 4S appears to be largely underwhelmed, but analysts remain optimistic about Apple's growth. An analyst at Jefferies said he has got hopes up for a redesigned LTE iPhone 5 that appears to be coming sooner.

Apple took the wraps off of the iPhone 4S, the phone we originally thought was going to launch but then we (like the rest of the Street) got our hopes up for a redesigned iPhone 5, said Peter Misek, an analyst at Jefferies.

Our view of Apple has not changed and we believe that the changes underneath the surface are sufficient to cause many current iPhone 3 and 3GS owners to upgrade and that the lower-priced 3GS will drive significant volumes in emerging and pre-paid markets, said Misek.

While the form factor of iPhone 4S does not have a bigger screen or thinner body, the processor improvements, HSPA+ speeds (particularly beneficial for AT&T and European subscribers) should drive a large number of upgrades, especially outside the U.S., Misek said.

Other positives are the Sprint addition and the new 64GB stock-keeping unit for $399 (likely Apple's highest margin product and partially offsetting some of the 3GS impact). Misek also expects China Telecom (108 million subscribers) to launch the iPhone in calendar first quarter.

Misek believes the most important announcement was that Apple was keeping the 3GS and 4 while lowering the price (under contract the 8GB 3GS is free and the original 16GB iPhone 4 is $99).

He believes the unsubsidized wholesale price of the 3GS could be $350 (or even lower), which he believes has a large market opportunity in emerging and pre-paid markets.

On Oct. 28, Apple will launch iPhone 4S in 22 more countries and in 70 countries by the year-end with 100 carrier partners. Barclays Capital analyst, Ben Reitzes, said this pace is the fastest rollout in the iPhone history and points to a big December quarter push.

In addition, Apple also lowered prices and enhanced software features for the iPod line into the holidays, including the introduction of a new white iPod Touch (all available Oct. 12).

The new iOS 5 will be available for all iOS devices on Oct. 14. iCloud will also be available on Oct. 12 and Reitzes was very impressed with its capabilities -- which includes streaming and caching content to devices -- a welcome surprise with implications for storage.

We believe today's launch is in-line with expectations heading into the event, but note that there are many new compelling features which should help drive upgrades, said Reitzes.

As expected by Misek, the iPod Touch (starting at $199, previously $229) is now available in white, and while seemingly insignificant, experience with the white iPhone launch shows that a new color can drive demand even in a mature product.

Also, the iPod touch will get a free upgrade to iOS 5 and will be able to communicate using iMessage over Wi-Fi with iPhone/Mac users.

Surprisingly, a significant amount of attention was paid to the new features of the new iPod Nano (now starting at $129, previously $149). The new Nano features large icons, enhanced fitness features (accelerometer tracks runs and exercise without additional accessories) and new clock faces for using the iPod Nano as a watch, said Misek.