Technology Rumor of the Day: Apple

The iPhone is entering its third year amid tougher competition, and without another steep price cut, demand is in trouble.
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Apple's

(AAPL) - Get Report

scorching-hot iPhone is bound to lose some steam.

The iconic iPhone is entering a critical third year amid tougher competition, and if expectations are accurate, the upcoming version brings few, if any, must-have new features. Without a steep price cut like last year, iPhone demand will slide.

Apple has sold about 20 million iPhones in its two-year stretch. That is a phenomenal performance for an expensive phone -- $200 plus a mandatory two-year

AT&T

(T) - Get Report

service charge that averages around $2,400.

The new features expected on the next iPhone model -- e.g. video and more memory -- sound nice, but they aren't likely to inspire crowds to camp out in lines at the Apple store.

Three years is a significant milepost in the life of cool gadgets. The previous icon of phone design,

Motorola's

(MOT)

Razr, which debuted with a $600 price tag, had a sweet three-year performance, with more than 100 million units sold before the curtain came crashing down.

Certainly the iPhone is a whole generation ahead of the Razr -- it's easy to use, has loads of fun features, etc. -- but many rules of the hot-then-cold consumer market still apply.

The iPhone's sleek form and nearly wall-to-wall touchscreen is appreciably elegant. But it's asking a lot for that design, without significant alterations, to carry the trend as robustly for a third year. Meanwhile, new entries such as

Palm's

(PALM)

Pre smartphone,

Research In Motion's

(RIMM)

BlackBerry Storm, a few

new touchscreen phones

from

Nokia

(NOK) - Get Report

, phones that run on

Google's

(GOOG) - Get Report

Android platform, and endless new offerings from

Samsung

and

LG

make a for a fresh crop of worthy competitors.

"Sequels that copy the original look of the first-generation model too slavishly, tend to have short life spans in the phone business," says Global Crown Research analyst Tero Kuittinen. As the Razr showed, "this cookie cutter strategy ended up backfiring spectacularly," he added.

Granted, unlike the Razr, Apple's iPhone is more than hardware. Users rave about it as a great media player and a decent mobile Web device. And the enormously popular iPhone App store, which lets users download software to run features like Facebook and weather widgets, gives Apple a competitive edge.

But is that enough to keep the halo glowing?

Apple does have one option if it needs to reinvigorate iPhone's sales: Cut the price to $99.

Sounds good, but don't hold your breath. Apple doesn't lower prices on new, improved models. Last year, for the rollout of the 3G iPhone, the price was cut from $400 to $200 when Apple agreed to have telco partner AT&T cover a bigger portion of the cost to buyers. In exchange, AT&T locked iPhone customers into higher-rate two-year contracts.

Apple is far too cunning, or proud, to repeat Motorola's pricing disaster. Toward the end, Razrs were given away two or three at a time as bait for new contracts.

The takeaway: Winning streaks are glorious, but they never last.