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Thursday, August 10, 2006, 08:05 pm PT (11:05 pm ET)

Jobs talks up Apple cell phone

Apple Computer chief executive Steve Jobs has been boasting about his company's much-rumored iPod cell phone amongst inner circles, AppleInsider has been told.

The remarks are uncharacteristic of Jobs, who is often regarded for his obsession with secrecy — especially when it comes to unannounced products from his own company. But it's been said that Jobs' own excitement over the device has produced a number of zealous ramblings amongst personal acquaintances dating back to this spring.

One person familiar with the ongoings believes the Apple cofounder has commissioned the release of cell phone prototypes to at least two potential OEM manufacturing partners in recent months. Current designs are said to conform to Apple's integrated model and leverage its tightly-knit digital media franchises, that person added.

Speaking on conditions of anonymity, a second informant has told AppleInsider of an incremental buzz surrounding the phone, which has heightened in recent weeks. The informant, who flourishes a nearly unblemished track record in predicting Apple's future music directions, has said the device is slated to turn up earlier than some people may be expecting, in the form of a "big bang" introduction that will catch even some insiders off-guard.

By now, the notion of an Apple-branded iPod cell phone has grown from rumor to expectation, fueled in part by analysts on Wall Street who have become increasingly vocal in their convictions that Apple is developing such a device.

Upon exiting a meeting with the company's leadership earlier this year, Bear Stearns analyst Andy Neff said it was his belief an iPod phone was "in the works." Similarly, Shaw Wu, an analyst with American Technology Research, recently stated his "firm" belief that Apple has been working on cell phone technology.

Wu said the Cupertino, Calif.-based company is likely to adopt an MVNO (mobile virtual network operator) strategy, where it will not own a licensed frequency spectrum, but instead resell wireless services from larger providers under its own name. Such an approach would allow Apple to maintain tight control over the phone's user experience, he said.

However, Wu is like a handful of analysts that are doubtful Apple will be able to roll-out its mobile strategy until mid-2007 at the earliest. Instead, the analyst believes the company is still working out its go-to-market strategy and may need the additional time.

For Apple, a long-running concern about offering an iPod cell phone is the risk that it may cannibalize the low-end flash player market, which includes its 1GB and smaller capacity iPod digital music players.

"The company has said it is possible that a music-enabled phone could cannibalize the demand for a lower priced iPods," PiperJaffray analyst Gene Munster recently told his clients. He equates the conflict to the inclusion of digital cameras in cell phones, which did not impact demand for higher end cameras, but weighed on the lower-end market.

"While we continue to believe there is a high chance that Apple will launch an iPhone in the next 12 months, the company says that the right path for Apple is to continue to pursue devices with one primary feature and not focus on multiple functions in one device," Munster said.

Still, Apple has been known to make diversionary comments in an effort to safeguard its future product plans. During a conference call with media and analysts in October 2004, a member of the company's executive team stated that Apple had no plans to enter the sub-$800 PC market and would instead focus its efforts on its booming music business and related products. Less than three months later, Apple introduced its first sub-$500 computer: the Mac mini.

For these and other reasons, the mainstream media has been unwilling to relent in its probes into the possibility of an iPod cell phone. At times, even Jobs appears to have been caught slightly off guard by the barrage. At the launch of the Apple Store Fifth Avenue in Manhattan this May, a CNBC reporter abruptly asked the Apple chief when consumers would be able to buy an Apple iPhone.

"You know, we never talk about unannounced products," said Jobs, "...but if we ever do announce something like that I'd love to talk to you about it then."

Jobs may have been speaking literally, say insiders, who note that he is unlikely to proceed with plans to bring the device to market unless all the pieces fall smoothly into play at the right time. "It must function as seamlessly as it looks," said a source. "That's the only way he will have it."

The mercurial CEO has watched new product initiatives span well into their respective development cycles before deciding to pull the plug for one reason or another. A known perfectionist, Jobs has also gone on record in saying that he is just as proud of the products Apple has shipped over the year's as he is with the company's deciscion not to ship others.

But it's looking increasingly unlikely that Apple's mobile initiative will fall by way of the ax. Perhaps the most telling piece of evidence to this end came during the company's quarterly conference call last month. During the call, an analyst pressed members of Apple's leadership for their thoughts on the tremendous growth Sony has realized with its relatively new Walkman phone. Apple's chief financial officer Peter Oppenheimer fielded the question by saying, "We don’t think [...] phones that are available today make the best music players. We think the iPod is, but over time that’s likely to change." He then added, "And we are not sitting around doing nothing."