WWDC Highlights Apple's Software Foundation

The software innovations announced by Apple Inc. (NASDAQ: AAPL) at its Worldwide Developers Conference (WWDC) are laying the foundation for the next round of share gains in mobile phones, tablets and computers, especially with 4G connectivity going mainstream next year, Barclays Capital said.

As expected, the company introduced Mac OS X Lion, iOS 5 and iCloud – no new hardware was discussed at the event. While not catalysts, we believe the software and service upgrades announced will help keep Apple ahead of its competitors in digital music and within the mobile ecosystem (i.e., Amazon and Google), said Ben Reitzes, an analyst at Barclays Capital.

Reitzes said investors may be a bit disappointed no content streaming service was announced but we believe that Apple can still launch a music and video streaming offering next year that fits better with it’s yet to be released 4G products.

Apple previewed iOS 5 that includes 200 new features available to iPhone, iPad and iPod touch users this fall. Key new features include Notification Center (viewing and managing notifications), iMessage (messaging between all iOS devices), Newsstand (purchasing and organizing newspaper and magazine subscriptions), PC Free (no computer required; OTA updates), Safari, Reading List, Twitter integration, Camera updates, Game Center, Mail enhancements, AirPlay Mirroring, and Reminders (help manage tasks).

iOS 5 will be available as a free software update for iPhone 4, iPhone 3GS, iPad 2, iPad and iPod touch (3rd and 4th generation) this fall. Reitzes believes iOS 5 addresses most if not all competitive features that Android, WebOS and Microsoft Phone software had that Apple lacked -- and perhaps improves upon them.

For example, Apple unified messaging across applications and devices (texts show up on the iPad with iMessage, a la WebOS) and the notification center (like Android). Also, iOS 5 enables one button pressing for easily snapping photos, like Windows Phone Software, Reitzes said.

Apple introduced iCloud which incorporates nine free cloud services that will work across the Apple platform of devices including iPhone, iPad, iPod touch, Mac or PC to automatically and wirelessly store content and push it to your devices (up to 10).

The free iCloud services outlined include: contacts, calendar and mail (formerly MobileMe services; MobileMe is no longer offered); App Store and iBookstore now download to all devices; Backup is initiated daily when you charge your iPhone, iPad or iPod touch; Pages, Numbers and Keynote already take advantage of iCloud storage (users get up to 5GB of free storage; users can buy more with details to follow this fall); Photo Stream automatically uploads photos to all devices; iTunes allows you to download previously purchased iTunes music to all iOS devices (free) and iTunes Match allows you to replace your music (not purchased via iTunes) for a $24.99 annual fee.

iCloud will be available with iOS 5 this fall. Reitzes believes that some investors may be disappointed that iCloud is not accompanied by a music and video streaming service. However, he believes this type of capability is coming -- just not now.

Reitzes still believes that Apple will launch a new 3G iPhone in September, which will likely feature a faster processor, a better camera and improved design. He believes that this new phone will be optimized to take advantage of the features in iOS 5. He doesn't expect an iPhone with 4G speeds until next year, which could be the biggest upgrade cycle yet given its ability to take further advantage of the cloud.

While Apple may wait a year when it introduces a 4G speed iPhone to take full advantage of that capability, it seems iCloud and iTunes Match has laid that foundation. The positive of the iCloud announcement is that it will be free -- enticing mass adoption -- and help Apple sell more devices. The negative is that streaming was not mentioned once and it may have to wait until next year, said Reitzes.

Apple announced that Mac OS X Lion will be available in July as a download from the Mac App Store (no more discs) for $29.99 -- which is priced materially less than previous versions of Mac software -- but obviously with an even higher margin given no packaging costs.

Reitzes noted that Apple had previously previewed some of the core functionality of Mac OS X Lion back in October 2010. Lion includes 250 new features including new multi-touch gestures (functions like iOS), full screen app support, Mission Control, the Mac App Store, Launchpad, new Mail, Resume, Auto Save, Versions, and AirDrop.

Mac OS X Lion Server will be available in July for $49.99. In terms of Macs, Reitzes believes Apple will continue to grow faster than the PC market given its software ecosystem, growth in emerging markets and a halo effect from iOS devices.

Apple stock closed Wednesday's regular trading up 0.06 percent at $332.24 on the NASDAQ Stock Market, while in the after-hours the stock moved down 0.01 percent to $332.22.