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Get set for a summer of Apple

The smart phone market, in which the iPhone will compete, however, is considerably smaller. About 81.3 million smart phones shipped last year, according to iSuppli, which defines smart phones as "handsets with an open OS (like Windows CE, Symbian, Linux), which allow functional expansion of the device through sophisticated add-on applications such as personal information management".

The iPhone runs Mac OS X and Jobs promises it will deliver "the full Internet" to a mobile phone. Moreover, he said, at the January Macworld conference: "We have reinvented the phone."

It's a bold claim, but iPhone success is not a given. Unlike 2001, when other companies were shipping MP3 players but no one company had strong control of the market, the smart phone business is served by well-established, deep-pocketed players such as Nokia, RIM and Samsung. And unlike the PC industry, it's also controlled by the companies that provide the pipe to the Internet -- in the US these are Verizon, T-Mobile and AT&T, Apple's partner for the iPhone launch.

This is also a market where design has been essential from the beginning, potentially dulling Apple's usual competitive edge. Apple's reputation in both the MP3 and PC markets has been made on cutting-edge design, but competing on design with some of the products trotted out by the PC industry over the past five or six years wasn't exactly difficult.

Still, Jobs appears to believe the iPhone's simple user interface, with its single button and multifaceted display, is a significant improvement over the Qwerty keyboards on RIM's BlackBerrys or Palm's Treo, or the numeric keypads found on other smart phones. Reviewers have yet to give the iPhone a thorough test, so it's hard to know if concerns about typing and screen smudges -- not to mention the slow EDGE network it uses -- will prove to be problems for the iPhone.

Apple's main advantage in the mobile phone industry could be the same thing that has attracted computer users: the complete control of both hardware and software development the company has over its products, said Baker.

Apple already has a leg up on the rest of the PC industry in its transition to becoming a broader consumer electronics company with the success of the iPod and the power of the iTunes store. No PC company has managed to enter another consumer category this decade with even half the success of Apple's move into digital music.

Even though Apple's Mac shipments are growing faster than the rest of the industry, the PC market as a whole is expected to slow over time as PCs become more like kitchen appliances rather than fast-growing tech gadgets. In shifting to the consumer electronics world in search of faster growth, Apple will have to avoid alienating its core audience, the die-hard loyalists who have supported the company for years through a myriad changes.

Jobs' decision to delay the release of Leopard in order to get the iPhone out on time underscores the change in priorities at Apple that's been underway since the iPod exploded. Of course, if the iPhone is a hit, and Mac OS X continues to evolve, no one will care.

"To some extent, they can't lose sight of those people because OS X is central to other products that they are doing, and that connects them back into the core of Mac users," said Baker. "Wherever they go with the iPhone, Mac OS X is going to follow them."