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Tuesday, July 31, 2007, 08:00 am PT (11:00 am ET)

Apple's first iPhone software update to arrive shortly

Speaking to analysts for RBC Capital Markets this week, Apple's Vice President of iPod Product Marketing, Greg Joswiak, said the first software update for his company's iPhone handset is due to arrive shortly.

"Management expressed excitement at plans to increase iPhone value over time via new software features, citing 'the sky is the limit' for iPhone software," analyst Mike Abramsky told clients in a research note Tuesday. "An iPhone update patch is expected shortly."

Abramsky speculated that upcoming iPhone software updates would include new widgets, peer-to-peer applications (chat, picture messaging, social networking), location-based services, MMS support, home networking, and possibly some integration with Mac OS X Leopard.

"No word however on integration to Microsoft Exchange," he wrote. "It appears to us that Apple, classically, has more pleasant surprises in store for iPhone fans and investors."

After speaking with Joswiak, the analyst also made changes to his predictions for future iPhone models. Although he spoke of "higher resolution" iPhones earlier this month, Abramsky now says he expects Apple to differentiate its iPhone lineup not by features, but by price and memory capacity. The move, he explained, would be similar to how the company grew its iPod lineup, simplifying market positioning.

"This affirms our view of a lower priced ($349-399) iPhone [in the fourth calendar quarter of 2007 or first calendar quarter of 2008], with a higher priced version at higher capacity, to expand its market opportunity," the analyst wrote.

Based on his chat with the Apple VP, Abramsky also said the company appears firmly committed to EDGE/GSM and will likely carry that strategy over to its European iPhone launch during the fourth quarter of the year.

"Despite 3G's greater prevalence in Europe, 3G iPhones may not arrive until Spring 2008, given battery life and form factor challenges," he told clients, adding that he expects the device will initially see availability only in the UK, Germany and France. "Apple may promote Wi-Fi as its high-speed strategy for now, offsetting slower EDGE."

For its part, Apple's primary negotiation objectives with European carriers are said to focus on securing affordable data service plans (rather than royalties), along with control over pricing and sideloading of apps/updates, to assure the "entire solution at right value."

The RBC Capital analyst reiterated his Outperform rating and $175 price target on shares of the Cupertino-based Apple.

"Apple appears well positioned to achieve/exceed its stated iPhone sales goals," he wrote.