Apple Investors Drool as New iPhone Nears

Shares of Apple have climbed near a 52-week high as traders await CEO Steve Jobs' (above) likely unveiling of a speedier iPhone model on Monday.
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SAN FRANCISCO -- It's showtime for

Apple

(AAPL) - Get Report

as the company gears up to host its annual week-long conference for developers.

This year, expectations are running high. Apple watchers are betting the company will launch a new iPhone model that runs on the faster 3G cellular network -- and refresh its existing iPhone with a lower price and new features.

In his much-awaited keynote Monday, Apple CEO Steve Jobs also is likely to discuss third-party applications for the iPhone and offer a peek into the early version of the Mac OS X 10.6 operating system, say analysts.

For investors, who have seen Apple shares shrug off the market's downturn to climb more than 50% in the past three months, this year's Worldwide Developers Conference (WWDC) speech by Jobs could spark the stock higher. Such a reaction would clash with the historical pattern.

Still, with the stock now at $189.43 -- just 6% off its 52-week high of $202.96, the keynote could signal a time for some investors to book some "sell-the-news" profits.

In the past, the WWDC has been a rather geeky event, aimed at pleasing Apple's developers and focusing on the company's operating system and its Mac line of computers. As such, in the last five years, the market's reaction to the event has ranged from downbeat to indifferent.

Instead, it's been the annual

Macworld conference

in January where Jobs has chosen to introduce such company hits as the iPhone and iPod. That event has been eagerly watched by investors.

Last year, Apple announced that the iPhone would support third-party applications, introduced the Safari browser for Windows PCs and the latest in its operating system, Mac OS X Leopard.

The news, while cheered by developers, paled in comparison with the launch of the iPhone on

AT&T's

(T) - Get Report

network earlier in the year. Apple's stock traded down nearly 3.5% on June 11, 2007, on the first day of the conference, and closed down nearly 3% at the end of the conference week.

Similarly, in 2006, the company previewed its Mac OS X Leopard and introduced the Mac Pro desktop computer with Intel dual-core Xeon processors. The market reacted by pushing the stock down 1.6%. Apple shares ended the week down 6.8%.

Thanks to the buzz surrounding a new iPhone, that's probably set to change. Romeo Dator, co-portfolio manager of the All American Equity Fund

(GBTFX) - Get Report

at U.S. Global Investors is confident Apple investors will react positively to Jobs' keynote Monday.

"I think it will boost the stock," says Dator. "It is really product flow that drives Apple, and this is a key event." For the first time since the Worldwide Developer Conference started in 1983, it has sold out.

But this year, iPhone could save the day -- the trading day, at least -- for Apple, says Dator. Last year, AT&T CEO Randall Stephenson said there will be a 3G iPhone this year, and it's seen as close to an absolute certainty that Jobs will unveil it Monday.

As current first-generation iPhone models became more difficult to find both at Apple stores and online this spring, company watchers were led to believe Apple was clearing out its inventory in preparation for a newer model.

The iPhone launched nearly a year ago and ran on AT&T's EDGE mobile-data and Internet access technology. Apple chose EDGE because it would offer

better battery life

for the iPhone due to lower power consumption and also keep the physical specifications of the phone down for a slimmer phone.

That choice, however, meant users were stuck with slow Internet access, leading analysts to believe that many consumers who wanted faster data access on their phones stayed away from the device.

A 3G network-based iPhone could offer better Internet speeds, browsing experience and data access, making it a truly powerful multimedia device. That could significantly boost sales of the iPhone, believe analysts.

Apple has said it expects to sell 10 million iPhones this year. A 3G iPhone, as well as a lower-priced version of the original model, could help the company beat that target. For every 1 million incremental iPhones sold, American Technology Research analyst Shaw Wu estimates 15 cents to 20 cents in incremental EPS recognized over 8 months.

Although the iPhone now contributes just about 2% to 3% of the company's revenue, analysts such as Wu believe it could become as big as the company's Mac business -- with $15 billion to $20 billion in annual worldwide revenue.

On Monday, Apple is expected to offer details of third-party applications that will run on the iPhone and the application store where developers can sell their programs. The company could also elaborate on the new elaborate on the new iPhone software developers kit and and iPhone enterprise features that could help the device compete more successfully against rivals such as BlackBerry maker

Research In Motion

(MOT)

and

Motorola

(MOT)

, says Snell.

That doesn't mean Macs, the star of most previous developer conferences will get the short shrift.

"There is a lot of crossover between software development for the Mac and the iPhone," says Snell. "It would be interesting to see if the developer focus on iPhone will lead to more software for the Mac."