Apple beefs up iPhone, iPod memory

Apple on Tuesday introduced higher-priced models of its iPhone mobile handset and iPod media player with double the memory of older versions, altering its lineup for the second time in six months to encourage shoppers to spend more.

A 16-gigabyte version of the iPhone will cost $499, and a 32-gigabyte edition of the iPod Touch will sell for $499, the maker of the Macintosh computer said Tuesday. The new iPod can store about 7,000 songs, while the updated iPhone can hold about half that.

Chief Executive Officer Steve Jobs added new iPods, including the touch-screen version, in September to expand Apple's array of more expensive devices that can play video. The higher-capacity iPhone may buoy sales until the company releases a model later this year that operates on so-called third-generation networks, which run high-speed Internet and video.

"The next really big thing is going to be a 3G phone," said Romeo Dator, who helps manage $5.5 billion, including Apple shares, at U.S. Global Investors. Meanwhile, the storage boost may lure shoppers to the Touch, which connects to the Web, instead of models with fewer features, he said.

While iPod unit sales growth slowed last quarter, the product generated more revenue as shoppers bought pricier models. Shipments rose 5 percent to 22 million. They had increased 17 percent in the previous three-month period. Still, iPod revenue jumped 17 percent to $4 billion, compared with a 3.8 percent increase in the previous quarter.

Apple introduced the iPod Touch in September for customers who wanted the features of an iPhone without mobile-phone service. The company also began offering a "classic" iPod with more storage and a new version of the smaller iPod Nano. The 16-gigabyte Touch will remain available for $399, Apple said Tuesday.

The new models will "cannibalize what would've been sales of lower-capacity devices," said Andy Hargreaves, an analyst at Pacific Crest Securities. "They have to move to the higher end." He expects the shares to outperform the broader market and doesn't own any.

Two iPhone models went on sale in June, including a 4-gigabyte version that Apple discontinued in September, saying customers preferred the larger version.

The 8-gigabyte model got a $200 price cut that month and continues to sell for $399.