Jobs is back: with a new iPhone

Gossip that the next-generation iPhone will be unveiled on Monday has the technology industry agog, says Nick Clark

The tension is palpable. Apple is preparing to kick off its annual conference next week and the internet has been buzzing with speculation that the company will unveil the next generation of its iPhone.

There is much riding on this unknown bit of kit as the group looks to expand its mass market appeal as well as face down a host of rivals, one of which has today launched what some believe could be the first "iPhone killer". Adam Leach, an analyst at the research group Ovum, said: "Apple has established the product in people's minds, but they have to prove they can keep innovating to stay out ahead. This is an important release for them."

Apple's Worldwide Developers Conference in San Francisco kicks off on Monday, hosting more than 1,000 Apple engineers, and acting as a forum for developers and IT professionals who use the company's technology. For the past two years it has been the launching pad for new iPhones. There was good news for the group yesterday as it emerged that its founder, Steve Jobs, had recovered sufficiently from his recent ill health to return to the company sometime this month. He coule even present his traditional keynote at the conference, but currently his lieutenant Phillip Schiller is expected to announce the latest step forward in iPhone technology.

Michael Brook, editor of the technology magazine T3, said: "No one is quite sure what to expect, as we've only had two years of the iPhone. At one extreme it could be a whole new model, although it's more likely to be an updated version. At the other end it could just be a few updates, but that would be pretty disappointing."

The consensus among analysts and some of the iPhone-obsessed blogs is that the upgrades are likely to include a better camera, a video camera for the first time, and a compass. The storage capacity is likely to be lifted to 32 gigabytes, while the design could become sleeker, with a higher resolution touchscreen.

Users have also cried out for the battery life to be extended. "An interesting move was Apple applying for a patent on a solar panel screen. It could be embedded behind the touch screen and when you leave it out in the sunshine it would top up the battery power. That would go some way to helping solve the problem of the battery," Mr Brook said.

Yet, technology experts are hoping for something more revolutionary. Mr Brook said the company could follow the path it took with the iPod, by launching an iPhone Nano.

Carolina Milanesi, a research director at Gartner, said a Nano-style iPhone could well be a possibility. "It is taken for granted that Apple will launch something. The question is whether it will be high or low end. I think something like the Nano makes sense." The move will also allow it to hit the mass market more comprehensively, analysts said.

Mr Jobs launched the iPhone in 2007 to great acclaim, selling 270,000 in its first weekend. The following year, the group drove further ahead of rivals with the launch of the iPhone 3G. More than three million were sold in the first month.

Yet the group's rivals are beginning to catch up. Ms Milanesi said: "Apple definitely faces challenges. The touchscreen it brought to the mass market is now everywhere."

The smartphone battleground is heating up. Strategy Analytics said 152 million of the phones were sold last year, and it expects growth of up to a fifth this year. Apple faces unprecedented competition from BlackBerry. The group that cornered the market for corporate contracts is increasingly targeting consumers. It has struggled with its BlackBerry Storm in the UK, but in the US the BlackBerry Curve outsold the iPhone during the first quarter.

It also faces competition from the phones powered by Google's Android operating system. The biggest so far is the HTC Magic, launched earlier this year. Sales of Google-powered phones 8 million this year.

Many are jostling but only one is expected to have the draw to combat the iPhone on its own turf. The Palm Pre launches today after much fanfare, and Mr Brook of T3 said it was "the closest thing yet to an iPhone killer". It is no coincidence that the launch comes two days before the Apple conference, as one analyst said it is "a deliberate move to steal the limelight from Apple".

It is a dangerous strategy. Last year, Samsung launched its Omnia phone on the same day as the Apple conference in an attempt to act as a spoiler, and ended up getting lost. The iPhone still remains ahead, but for how long is unclear, and analysts said next week could be crucial.

"The iPhone is not as differentiated, so the challenge is to create something that looks as different as the iPhone did," Mr Leach said.

The challengers: Five biting into Apple

*The Palm Pre launches today and first reviews say it lives up to the hype. Palm said the phone is so in sync with your life "it feels like it's thinking ahead for you".

*No longer content with Wall Street, BlackBerry has targeted Apple's consumer heartland with Storm and Curve. US sales figures show that the latter is winning fans over.

*HTC Magic brings Google's Android to a touchscreen device. Experts say it takes Google's G1 phone to the next level.

*The industry is eagerly awaiting Toshiba's sleek TG01 device, which is set to be one of the most advanced of Windows Mobile phones.

*Samsung releases its latest smartphone challenger this month. Despite the mystery, hype is building.