Apple Needs Cheaper iPhone, Netbooks to Thrive

Apple needs a cheaper iphone and netbooks to open revenue streams, industry observers say.
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Updated from 12:07 p.m. EST

Apple

(AAPL) - Get Report

may be faring better than other recession-hit tech firms, although

tightening IT spending

could still force the company to rethink its product strategy.

This is the message from Apple watchers who are keen to see the notoriously secretive tech company overhaul its product roadmap with low-cost netbooks and iPhones.

Apple, which holds its annual shareholders' meeting Wednesday, should make mini-laptops, or netbooks, one of its top priorities for 2009, says Ezra Gottheil, an analyst at Technology Business Research (TBR).

"They need to address the netbook problem," he told

TheStreet.com

. Gottheil said that, ideally, this would not be a general-purpose PC, but rather a $600 device for email, Web browsing and games.

With mini-laptops growing in popularity, Gottheil thinks that a low-cost, stripped-down, netbook-style product would open new revenue streams for Apple without cannibalizing its more expensive MacBooks.

"I think it's a strong possibility," he said. "I would expect it to come out before the end of the third quarter, possibly before the end of the second quarter -- the timing depends on how badly Apple is hit by the global recession."

Despite Apple's strong

first-quarter results

, research firm NPD

recently warned

that Mac unit sales dropped 6% year over year in January, with iPod unit sales falling 14%.

A move into low-cost computers would be a major strategic shift for Apple, which has traditionally prized performance over price, and it would pit the firm against the likes of

Hewlett-Packard

(HPQ) - Get Report

and

Asus

Apple's stand-in CEO Tim Cook did not dismiss this possibility during a recent conference call.

"We're watching that space -- but right now we think that the products there are inferior," he said, asserting that users are struggling with cramped keyboards and small displays.

The iPhone could also be a major focus area, according to Gottheil, who said that users are looking for low-cost smartphones.

A spokesman for Apple refused to divulge the firm's product roadmap when contacted by

TheStreet.com

, although at least one analyst expects major iPhone enhancements this year.

"We believe that Apple will enhance the digital camera on the iPhone and introduce video by mid-year," wrote Ben Reitzes, an analyst at Barclays Capital, in a recent note. Reitzes feels that video-sharing could prove crucial to the iPhone, as evidenced by the popularity of the Flip mini camcorder. Apple may also tout a smaller phone for the pre-paid market, according to the analyst.

"Our checks on NAND

flash memory and within the supply chain indicate Apple is gearing up for another iPhone product cycle by the summer with an 'iPhone nano' possible by year end. "Checks also indicate that Apple could introduce an ultra-portable device by early fiscal 2010 which would bridge the gap between the iPhone and its MacBook line."

Apple made just a

handful

of product introductions at its MacWorld event earlier this year, and investors have since been eagerly awaiting any

information

on the firm's roadmap.

A former consultant at Apple, who asked not to be named, was hardly surprised by Apple's reduced MacWorld presence and said that this was in keeping with the firm's recent marketing strategy.

"While the iPhone 3G was announced at MacWorld 2008, many other products weren't," he said, explaining that Apple preferred to stagger its announcements throughout the year. "Watch for updates to AppleTV, the Mac mini, Apple cinema displays, and perhaps a home server

and true Apple-branded HDTVs."

Apple, which competes with

Dell

(DELL) - Get Report

,

Nokia

(NOK) - Get Report

and

Microsoft

(MSFT) - Get Report

, is also said to be

planning

a refresh of its iMac desktop lineup in 2009, as well as launching Snow Leopard, the previously announced update to its Leopard operating system.

The iPod and iPhone maker, whose premium PC pricing is vulnerable in the current environment, was

downgraded

from Outperform to Underperform by Calyon on Tuesday.

Apple shares closed Wednesday trading up 1% to $91.16, while the Nasdaq ended down 1.14%.

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