Music Phones: What Has Apple Got Up Its Sleeve?

End of month and need a eye-catching story? Just write the umpteenth article about the much rumored iPhone from Apple (AAPL). The latest from InformationWeek discusses the speculation around Apple working with Softbank "to jointly develop cellular phone handsets that have built-in iPod digital music players, and which could download songs directly from Apple's iTunes Music Store. The phone is expected to first be marketed in Japan."

Gene Munster at Piper Jaffrey said, "Our take is that there's a 75% chance that it comes to market first quarter 2007." Munster noted "his firm compiled a survey of the market for an iPhone. Of adults surveyed, an impressive 30% said they'd buy an iPhone from Apple, but a whopping 70% of high school students said they would leap to purchase such a device."

The article cites a recent study by the NPD Group that shows "in the second quarter of 2005, music-enabled phones represented just 2.9% of all new mobile phone sales. By first quarter 2006, however, that number had risen to 6%." Ross Rubin at NPD said, "It's still a small percentage of the whole, but rising steadily."

Charlie Wolf at Needham believed an iPhone, "If it does happen, it will largely be a defensive move."

Rubin added, "I don't think it's something that we'll see soon. For Apple to launch a phone that is compatible with the iTunes music store, it has to partner with a carrier, which I don't think would be very appealing for them."

Tim Deal at Technology Business Research said, "If you look at what happened when Apple partnered with Motorola for the iTunes-enabled cell phone, it had very limited appeal. Apple had very little control over the design, marketing, and distribution of the product, and it showed."