Stock Market Predictions

SAP Q3 sales, profit jump sends shares higher

Stock Market Predictions

"SAP's pipeline remains very strong and companies continue to invest in IT," SAP said in a statement, alleviating some of the fears of a slowdown in technology spending.

In the third quarter SAP said sales at its key software and software-related services business rose 16 percent from a year ago to 2.69 billion euros, with group sales of 3.41 billion beating a 3.32 billion consensus from Thomson Global Markets I/B/E/S.

Underlying operating profit for the group jumped 23 percent from a year ago to 1.13 billion euros ($1.5 billion), beating analysts' average forecast of 1 billion.

Reported profit numbers grew even faster due to a one-off gain of 723 million euros from the reduction of a litigation provision.

"While we believed that SAP will show a sound quarter, we are positively surprised in particular by the strong licenses," DZ Bank analyst Oliver Finger said in a note. "We think that the new products helped SAP to grow its top line."

Despite a strong third quarter SAP stuck to its outlook for the full year, citing the uncertain macroeconomic environment.

The company forecast in July it would reach the high end of its 10 to 14 percent growth forecast for software and related services in 2011, and said group operating profit would come in at the high end of the previously given range of between 4.45 billion euros and 4.65 billion.

SAP shares were 2 percent higher at 41.35 euros by 1032 GMT.

The company reports full results on Oct 26.

(Reporting by Tarmo Virki, Frankfurt Newsroom; Editing by Hans-Juergen Peters and Helen Massy-Beresford)

Magna shares slump on U.S. antitrust probe

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Analysts said the Justice Department investigation was likely part of a broader antitrust probe into the auto parts sector, which has been underway for at least 18 months, and did not expect the outcome to have a material impact on the Ontario-based Magna, one of the world's largest auto-parts makers.

Magna said the DOJ had requested documents related to various tooling bids, including a program for which a subsidiary within its Cosma International unit acted as tier 1 tooling supplier.

"I am confirming that the antitrust division is investigating the possibility of anti-competitive practices in the automotive tooling industry," said Justice Department spokeswoman Gina Talamona.

Tooling, which is the equipment used to make auto parts, makes up about 8 percent of Magna's sales and a smaller portion of its profits, Canaccord Genuity analyst David Tyerman said.

"It seems unlikely that any fine would be large enough to materially impact the company, given that it has $1.7 billion in cash currently," Tyerman said.

The Justice Department has a separate antitrust investigation into the auto parts business, said Talamona, who declined to say which companies were involved.

The Justice Department has contacted TRW Automotive Holdings Corp (TRW.N) and Autoliv Inc (ALV.N) in connection with possible violations of antitrust law, the two companies have said.

Magna's shares were down C$1.82 at C$37.13 on the Toronto Stock Exchange on Thursday afternoon. In New York, the stock closed down 5 percent at $36.41.

($1=$1.02 Canadian)

(Reporting by Nicole Mordant in Vancouver and Sakthi Prasad in Bangalore; editing by Rob Wilson, Bernard Orr)

No merit to report of Akamai-Google deal: source

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Shares of Akamai jumped more than 11 percent at one point in after hours trading on Wednesday, following the report by technology blog Business Insider citing "multiple ad tech sources" who were not identified.

A source familiar with the matter told Global Markets that the report of a deal was baseless.

Representatives from Google and Akamai said the companies do not comment on rumors.

Shares of Akamai, which are off more than 50 percent from their 52-week high of $54.65, gave up most of their after-hours gains later on Wednesday, and were trading up 2.9 percent at

$24.04.

Akamai, whose service improves the performance of websites, is a long-running subject of takeover rumors. Last week, there were reports that the company could be acquired by Verizon Communications or International Business Machines Corp, said Mark Kelleher, an analyst with Dougherty & Co.

"Ever since I can remember there's been theories of who could come in" and acquire Akamai, he said.

(Reporting by Alexei Oreskovic; Editing by Richard Chang and Carol Bishopric)

Clearwire rallies on subs growth, MetroPCS deal talk

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The numbers and Clearwire's preliminary third-quarter results, seemed to ease concerns about the company, which has been the subject of bankruptcy speculation.

Shares in Clearwire, which is majority-owned by Sprint Nextel (S.N), rose 26 percent. They had lost about a third of their value last Friday after Sprint, Clearwire's biggest customer, said it could benefit from a Clearwire bankruptcy.

This comment and Sprint's announcement that it will not sell phones that run on Clearwire's WiMax network after 2012 led to fears that Sprint no longer wants to support Clearwire.

Besides the subscriber numbers, Clearwire also reported a strong-than-expected cash position.

Also on Thursday, MetroPCS' finance chief told an investor conference that his company was "uniquely positioned" to make a spectrum deal with Clearwire.

A MetroPCS spokesman said Clearwire is just one option, but investors saw the comment as positive.

"A wholesale agreement with MetroPCS would be a significant positive for Clearwire," CreditSuisse analyst Jonathan Chaplin said in a research note.

Clearwire has said it is in talks with U.S. operators about renting space on its network, particularly where there is a high demand for services like mobile Web surfing. It has also said that it would entertain offers to buy its spectrum.

Clearwire depends almost entirely on subscriber growth from Sprint, which uses Clearwire's network for its high-speed wireless offerings. Chaplin said Clearwire needs more wholesale partners because Sprint is planning to upgrade its network to lessen its dependence on Clearwire.

Nelson said the wholesale numbers gave him confidence that Sprint will need to work with Clearwire in the future, said Mizuho analyst Michael Nelson.

STRONG GROWTH, SPECTRUM INTEREST

Clearwire expects to report 1.9 million new net wholesale customers for the third quarter, compared with the average estimate for 1.4 million from four analysts.

Clearwire, which needs about $1 billion in fresh funding to support its operations and upgrade its network, said cash and equivalents fell to $700 million on September 30 from $848 million at the end of June. That beat analyst estimates for less than $600 million.

The stronger than expected numbers should buy Clearwire some time to improve its viability, analysts said.

"The longer they can extend the runway, the more likely they can have success in raising additional capital," said Nelson.

Clearwire's forecast implied a loss of less than $54 million, according to Nelson, who had estimated a loss of $104 million before interest, tax, depreciation and amortization.

Clearwire has said it wants to raise up to $300 million to support its operations, and $600 million to upgrade its network to catch up with competitors.

Clearwire, which is finalizing its third-quarter report, estimated its subscriber count at 9.5 million at the end of the quarter. In August, it raised its 2011 year-end target to 10 million subscribers from 9.5 million.

The company expects to report third-quarter revenue of $332 million, up 126 percent from a year earlier.

Clearwire shares closed up 35 cents, or 27 percent, to $1.65 on Nasdaq. Sprint shares closed up 8 percent at $2.78 on New York Stock Exchange. MetroPCS shares closed up almost 5 percent at $8.94.

(Reporting by Sinead Carew. Editing by Lisa Von Ahn, John Wallace and Robert MacMillan)

Ubiquiti rises in debut, breaks U.S. IPO drought

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Investors shrugged off concerns over a U.S. government review of the company's sales into Iran to send its shares 16.7 percent above the $15 IPO price in their first day of trading on the Nasdaq. The shares closed at $17.50 after going as high as $19.00, up 26.7 percent, earlier in the day.

Ubiquiti makes wireless networking and video surveillance equipment. It priced 7.04 million shares at $15 on Thursday, the bottom of a lowered price range.

Europe's debt crisis and a weak economic recovery in the United States have made it difficult to price new issues. Most companies have opted to delay their IPOs until there is less volatility.

"A lot of companies have walked away. It's encouraging to see this deal work," said Morningnotes.com founder and IPO analyst Ben Holmes.

Holmes said the company's revenue growth and gross margins are impressive, and that after it cut the share price -- Ubiquiti sold shares for $6 below the midpoint of its original price range -- investors probably felt they were getting a good deal.

Ubiquiti's revenue has risen sharply in each of the last five years. It was profitable in each of those years except 2010.

In fiscal 2011, ended June 30, Ubiquiti posted net income attributable to common stockholders of $4.98 million on revenue of $197.87 million. Its gross margin during that period was 41 percent.

Rising markets likely also helped the share sale. The S&P 500 index .INX.SPX closed up 13.9 percent from an intraday low on October 4.

SALES INTO IRAN

While Ubiquiti is getting applause for completing its IPO, sales of its products into countries including Iran are being reviewed by the U.S. government.

Most of Ubiquiti's revenue in fiscal 2011 -- 70 percent -- came from overseas, and one of the penalties it could face would be loss of its right to export.

Ubiquiti said in its IPO prospectus that certain of its products were sold into Iran, Cuba, Syria, Sudan and North Korea and that some of its encryption components were sold without the appropriate export authorization.

In particular, it highlighted two distributors selling its products into Iran. Over the past three years, one distributor accounted for 7, 6 and 4 percent of Ubiquiti's revenue, the company said. It suspended sales to that distributor in February 2011 after it had continued selling into Iran after being told not to.

Ubiquiti said the other distributor's sales into Iran were not a "material portion" of the distributor's business with Ubiquiti, and that it now has a new agreement with that distributor that requires compliance with export control and economic sanctions laws.

"It looks like they have dealt with this," Morningnotes.com's Holmes said.

Ubiquiti said one U.S. government review of its sales into Iran resulted in a warning letter, and a second review is pending. The second review, by the U.S. Treasury's Office of Foreign Assets Control, could result in Ubiquiti facing fines, losing its ability to export, and being referred for criminal prosecution, the company said in the risk factors section of its prospectus.

In fiscal 2010, Ubiquiti recorded an expense of $1.6 million for export compliance, which it said is its best estimate of its exposure to fines.

U.S. relations with Iran are particularly sensitive right now because of an alleged attempt by Iran to assassinate the Saudi Arabian ambassador in Washington.

Ubiquiti said it did not mean to violate U.S. law but that violations occurred due to a "lean corporate infrastructure," an inexperienced management team, and the fact that most of its manufacturing and sales are outside the United States.

The company is headquartered in San Jose, California.

It said it has since revised its distribution agreements, disabled software downloads in certain countries, and obtained appropriate paperwork for its encryption products.

As of June 30, Ubiquiti had 92 full-time-equivalent employees in four offices globally. It has no direct sales force but instead relies on distributors, resellers and original equipment manufacturers. Ubiquiti Chief Executive Robert Pera is a former wireless engineer at Apple Inc. (AAPL.O)

Underwriters on the IPO were led by UBS Investment Bank (UBSN.VX) (UBS.N), Deutsche Bank Securities (DBKGn.DE) and Raymond James.

(Reporting by Clare Baldwin in New York, additional reporting by Rodrigo Campos in New York; Editing by Lisa Von Ahn, John Wallace, Gary Hill)

Google jumps as investors cheer mobile growth

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The world's No. 1 Internet search company offered a peek at its mobile business during quarterly results on Thursday, revealing that the business was generating revenue at an annual run rate of $2.5 billion, up from $1 billion last year.

That helped Google sail past third-quarter financial targets set by analysts, sending its shares up nearly 6 percent to $591.68 on Friday and easing some of Wall Street's concerns that mobile returns might not justify the investment.

"People just haven't given them any credit for that division. I think it could be a huge part of the overall company," said Pat Adams, portfolio manager at the Dunham Loss Averse Growth Fund, which owns Google shares.

"There are so many more mobile devices out there than there are PCs," Adams said. "What they did was brilliant to give that operating system away to get the search part of it," he added.

Google lets phone makers such as Samsung Electronics, LG Electronics and HTC Corp use its Android software for free, banking on consumers using those phones to visit Google's advertising-supported website to search for information.

The booming popularity of smartphones has frustrated many of the established giants of the computer industry, from Microsoft Corp to Hewlett-Packard Co.

For Google, whose business is built upon people using its search engine, making the transition from the personal computers to mobile devices is crucial.

The company has stepped up investments in its mobile business, which competes with iPhone-maker Apple Inc. Google's Android mobile software -- already the world's most-used smartphone platform -- powers 190 million devices, up from 135 million in mid-July.

The explosion of Android devices, as well as the availability of Google search on Apple's iPhones, has made Google even more dominant in mobile search than on the desktop PC, according to JP Morgan analyst Doug Anmuth who pegged Google's mobile search market share at 90 percent.

That strong position accounts for the sharp, 28 percent uptick in paid clicks on search ads that Google experienced during the third quarter, Anmuth said in a note to investors.

Those ads appear to command lower rates than PC search ads, analysts noted. But some analysts said they expect that to change over time, especially as Google creates new forms of advertising that take advantage of a user's location.

Mobile advertising sales is but one component of what analysts believe could be a broader wireless opportunity for Google. The company has begun offering coupon deals, and could make money through retailer loyalty programs and its recently launched Google Wallet, a free service which allows shoppers to use their mobile phones to pay for purchases.

MOTOROLA BET

More concerning for some investors is Google's plan to acquire mobile phone maker Motorola Mobility Holdings for $12.5 billion.

The deal will give Google access to one of the largest patent libraries in the wireless industry, as well as hardware manufacturing operations that will allow it to develop its own line of smartphones.

But some worry that Google is entering a low-margin hardware business in which it has no experience, and that the move could jeopardize its relationships with other phone makers that use Android.

BGC Partners analyst Colin Gillis said he did not think Google's increase in mobile ad revenue would make investors feel any better about the Motorola deal, which is expected to close this year or early in 2012.

"You could argue the Motorola deal puts some of that revenue at risk," he said, noting that some current Android phone makers might see Google as a competitor once it acquires Motorola and reduce their support for Google products. Google has said it plans to operate Motorola as a separate business.

Gillis also noted that the $2.5 billion annual run rate in Google's mobile business, while impressive, remains less than 10 percent of the company's overall revenue.

And he added that Google may not necessarily have based the $2.5 billion run rate on one quarter's worth of revenue, which would have suggested that Google made $625 million in mobile revenue in the third quarter.

"They probably took the last month and multiplied it by 12. It could be the last day," he noted. "We have no idea what that number really is."

Whatever the number though, Google's mobile revenue is clearly growing quickly, and for many on Wall Street, that's good enough for now. Many brokerages raised their price targets on Google on Friday, some by as much as 10 percent.

"We think mobile is near a massive volume inflection point," wrote Susquehanna Financial Group analyst Herman Leung in a note to investors on Friday.

"At these growth rates, we think mobile revenue could be larger than display (advertising revenue) by 2012."

(Reporting by Alexei Oreskovic; Additional reporting by Sayantani Ghosh, Tenzin Pema and Rachana Khanzode in Bangalore; Editing by Richard Chang)

Higher prices hurt at Safeway, shares fall

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Inflation hit 4 percent during Safeway's third quarter and sales volume declines accelerated more than in the previous period, Chief Executive Steve Burd said on a conference call with analysts.

Burd's comments sent shares, which had been up almost 7 percent earlier in the session, into reverse.

"You've now hit the inflection point where inflation is dampening demand. It makes it very, very tough to grow gross profit dollars in this framework," Susquehanna analyst Bob Summers told Global Markets.

"When you see the volume contraction accelerate, people aren't really going to stick around and ask any questions," Summers said.

The comments from Burd landed about a month after larger rival Kroger Co (KR.N) said its shoppers were getting more cautious -- visiting its stores more often, but buying cheaper items.

Major supermarket chains are struggling with falling sales volumes as all but the top-earning shoppers remain very cautious about spending.

Some analysts worry that grocery sellers may begin slashing prices to reverse the trend, a move that could revive the profit-denting price war that hobbled the industry during the throes of the U.S. recession in 2008.

Wal-Mart Stores Inc (WMT.N) threw fuel on that fire earlier this week, when it announced plans to cut prices to match those of competitors.

The comments from Wal-Mart, which sells more groceries than any other retailer, signaled a possible return to a strategy that caused upheaval in the supermarket industry.

Meanwhile, the operator of chains such as Safeway, Vons and Dominick's is working to narrow its performance gap with Kroger.

In the latest quarter, Safeway's closely watched sales at identical stores -- established supermarkets that have not been replaced or significantly renovated -- rose 1.5 percent, excluding fuel.

Higher gasoline prices and an increase in the Canadian exchange rate were among the factors that boosted sales, Burd said on the call. He added that Safeway's market share was flat, compared with the year earlier.

"We wish our sales progress was much faster," said Burd, who added that he was satisfied with the quarter's results.

Still, Kroger's identical-supermarket sales for the latest quarter were up 5.3 percent, excluding fuel, due to higher food prices.

LOW EXPECTATIONS

Safeway's net income for the third quarter ended September 10 rose 6 percent to $130.2 million, or 38 cents per share.

The results topped the analysts' average estimate by 3 cents a share, according to Thomson Global Markets I/B/E/S.

"Bottom line here is that the quarter was much better than very low expectations," Credit Suisse analyst Edward Kelly said in a client note.

Kelly attributed much of the earnings beat to higher-than-expected identical-store sales.

Safeway's revenue rose a bit more than 7 percent to $10.06 billion, primarily because of higher fuel sales, and beat analysts' estimates of $9.86 billion.

Gross profit fell 114 basis points to 27 percent of sales. But gross margin was flat, excluding an 88 basis-point hit from fuel sales and a 26 basis-point charge from reporting gift card commissions.

Europe's debt crisis, worries about slowing growth in China and stubbornly high unemployment in the United States are contributing to worries that global economies are weakening.

Amid those concerns, Safeway repeated its full-year earnings forecast of $1.45 to $1.65 per share, including an estimated hit of 15 cents from a Canadian dividend. It also affirmed its target for identical-store sales growth, excluding fuel, of about 1 percent for the year.

Safeway shares fell 2.8 percent at $17.46 in afternoon trading on the New York Stock Exchange, while Kroger was down 1.6 percent and Wal-Mart dipped 0.48 percent.

So far this year, shares in Kroger and Wal-Mart are up just slightly, while Safeway is off roughly 20 percent.

(Additional reporting by Jessica Wohl in Chicago; editing by Dave Zimmerman and Gunna Dickson)

Coal miner Walter's shares rise on takeover talk

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The newspaper, The Australian, reported that BHP Billiton (BHP.AX) (BLT.L), the world's largest mining company, is considering a $6 billion bid for the company. It cited no sources.

On Thursday, a British newspaper, The Independent, said BHP and Anglo American (AAL.L) were interested in acquiring Walter, which has large reserves of steel-making metallurgical coal. That report said Anglo had poured cold water on such talk when it first came up in September.

BHP declined to comment. The company has flagged that it would chase acquisitions in commodities where it is not one of the leading players, after it was forced to scrap three big takeovers between 2008 and 2010 on competition and political concerns.

As one of the world's biggest coal producers, it would be likely to run into competition hurdles if it bid for Walter Energy.

UBS analyst Glyn Lawcock played down the likelihood that BHP would be interested in Walter Energy as BHP has the ability to double coking coal production from its Australian operations and is also focusing on Indonesia.

"U.S. coal producers are generally higher cost and lower margin than Australian assets within BHP current portfolio. I'm not sure why BHP would want to do it," he said.

A spokesman for Alabama-based Walter said the company would not comment on speculation

The company's shares rose 12 percent on Thursday and jumped 6 percent on Friday morning before easing to close up 2.8 percent at $77.36.

Analyst Lucas Pipes, of Brean Murray Carret & Co, said the price rise was clearly linked to the market talk that Walter was a target.

He said U.S. coal producer Peabody Energy (BTU.N) and European steelmaker ArcelorMittal (ISPA.AS) (MT.N) had just received final approval to go ahead with their joint acquisition of Australian miner Macarthur Coal (MCC.AX).

"That indicates there's still a lot of demand for met coal reserves and Walter falls into that category," Pipes said.

Other U.S. coal stocks rose on Friday on macro-economic issues, analysts said. Alpha Natural Resources (ANR.N) ended up 4.8 percent to $21.65, Arch Coal (ACI.N) finished 4.4 percent higher at $17.50 and Peabody Energy (BTU.N) rose 3.2 percent to $39.46. The Dow Jones coal index .DJUSCL closed 4.4 percent higher.

(Reporting by Steve James in New York and Sonali Paul in Melbourne; editing by Dave Zimmerman, Bernard Orr and Tim Dobbyn)

Higher costs, stronger dollar dent Mattel's margins

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Toymakers are fighting to shield their margins from a rise in the cost of raw materials like plastics and paper, and higher wages demanded by laborers in China, where a lot of U.S. companies make their toys.

Additionally, Mattel -- which gets roughly half its sales from international markets -- said a rise in the U.S. dollar against foreign currencies like the euro in September pulled down gross margins by about 180 basis points.

A stronger dollar, which brings down the value of exported goods by U.S. companies, is also likely to affect Hasbro Inc (HAS.O) when it reports results on Monday -- though the company is less dependent on international sales.

"The only issue we see with the company's results is the gross margin, which was below expectations and did not see the typical seasonal uplift from Q2 levels," MKM Partners analyst Eric Handler said.

Gross margins in the quarter fell to 47.8 percent from 51.1 percent in the year-ago period.

"If the dollar stays at current levels against the euro, it's likely to be a headwind in the fourth quarter as well," Handler said.

While margins fell, the strong sales performance bodes well for Mattel as it heads into the crucial holiday season at a time of growing economic uncertainty.

Mattel's closely awaited toys this holiday season include "Angry Birds Knock On Wood," a tabletop version of the highly popular game app for mobile phones, and the "Monster High Dead Tired" doll line that features offspring of famous monster characters themed on a pajama party.

Wedbush Securities analyst Edward Woo cautioned that the weak economic condition in Europe -- which until now have not really been reflected in toymakers' results -- could hurt sales of toys during the holidays.

"Just because the (European) economy hasn't hurt results, does not mean that it won't in the future as well ... right now, we don't know one way or the other," Woo said.

Q3 SALES BEAT

Third-quarter net income was $300.8 million, or 86 cents a share, compared with $283.3 million, or 77 cents a share, a year ago.

Net sales rose 9 percent to $2.0 billion. Barbie sales were up 17 percent in the quarter -- their highest percentage rise in more than a decade. Sales of Other Girls Brands, which include the Monster High and Disney Princess doll lines, were up 32 percent.

Analysts, on average, had expected earnings of 86 cents a share, before special items, on revenue of $1.97 billion, according to Thomson Global Markets I/B/E/S.

The company also increased its stock repurchase program by $500 million.

Mattel's shares, which have risen 9 percent this year in contrast to a 27 percent fall in rival Hasbro, were down 1 percent at $27.52 on Friday on Nasdaq.

(Reporting by Mihir Dalal in Bangalore; Editing by Sriraj Kalluvila and Saumyadeb Chakrabarty)

Apple's iPhone draws hordes again, powers shares

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Shares of Apple leapt 3 percent to close at a record after people thronged stores in Sydney, Tokyo, London, Paris, New York and San Francisco to get their hands on the iPhone 4S, ignoring criticism about the lack of a design revolution and reports of software glitches.

Fans in Sydney, Tokyo, Frankfurt and London made sure Jobs, who died last week, remained part of the iPhone 4S launch, with flower, candle and photo shrines erected outside stores. A black-and-white picture of the visionary leader in Covent Garden carried the line: "Let's make a dent in the universe."

In New York and San Francisco, hundreds showed up as expected but the mood proved more subdued than was typical on an iPhone launch day.

"I have a lot of respect for how he led the company and so the turnout, and especially the preorder sales, is a mark of appreciation for him," insisted Chris Centers, who was one of the people who has lined up outside the store.

One of the buyers had also stopped by to lay flowers at the San Francisco store's glass wall in honor of Jobs.

The new model looks similar to the previous iPhone 4 but has an upgraded camera, faster processor, enhanced security and voice-activated software, which lets users ask the phone questions. The voice software drew glowing reviews.

Unveiled just a day before Jobs died, it was initially dubbed a disappointment, partly because it looked identical to its predecessor. But anticipation of the "Siri" voice software helped it set an online record in orders on October 7.

Rivals' woes may have provided a boost. Research in Motion struggled for days to fix an international outage of its email and messaging services.

Also, about one in four people who thronged Apple stores from Tokyo to San Francisco told Global Markets they were ditching BlackBerries, discarding Nokias or even giving up Google Android-based phones, hoping for something better.

Apple CEO Tim Cook and his executive team hope the first device sold without Jobs at Apple's helm will protect the company against a growing challenge from the likes of arch-rival Samsung Electronics.

Analysts believe the South Korean company, which powers its phones with Google's Android software, surpassed Apple as the world's biggest smartphone vendor in terms of unit sales in the third quarter.

Apple does not release sales on launch day, so gauging initial figures is difficult. However, the company took more than 1 million online orders in the first 24 hours after the release of the iPhone 4S, exceeding the 600,000 for the iPhone 4, which was sold in fewer countries initially.

Sprint -- joining Verizon and AT&T in Apple's roster for the first time -- said on Friday it had chalked up a launch-day sales record for any device -- by around noon.

Jobs "made everything better and the products he released were thought through in such detail," Duncan Hoare, a foreign exchange trader, said as a loud roar greeted the opening of an Apple store in London. "It was about the beauty of something and the simplicity."

GLITCHES?

The iPhone -- seen as the gold standard for smartphones -- is Apple's highest-margin product and accounts for 40 percent of its annual revenue. The newest iteration uses chips from Qualcomm Inc, Toshiba and a host of smaller semiconductor companies, according to repair firm iFixit, which cracked the device open on Thursday.

Despite the enthusiasm at stores, Friday's launch was marred somewhat by widespread complaints on the Internet this week about problems downloading iOS 5, the latest version of Apple's mobile software.

There were also problems with iCloud, Apple's online communications, media storage and backup service formally launched on Wednesday; users reported glitches such as losing their email access.

Queues in Paris were smaller than those normally seen for a brand-new iPhone, with some fans there wondering if the somewhat underwhelming introduction had put people off. But in London and elsewhere the lines were as long as ever.

"Despite the initial disappointment that this wasn't an iPhone 5, the reality is we're still seeing the usual frenzy that we've got used to on launch day," analyst Ben Wood at CCS Insight told Global Markets. Analysts expect global sales of a few million phones on the first weekend, he added.

Analysts point to several factors in Apple's favor, including a $199 price that matches up well with rival devices, and availability promised on more than 100 carriers by the end of 2011, far more than its predecessors.

Underscoring the enthusiasm for the new phone, Japanese mobile carrier Softbank Corp had to temporarily stop contract applications after its computer system was overwhelmed with more requests than it had expected.

Some analysts expect fourth-quarter iPhone shipments to reach 30 million or more, almost twice as many as a year ago.

"I am a fan, a big fan. I want something to remember Steve Jobs by," said Haruko Shiraishi, waiting patiently with her Yorkshire terrier Miu Miu at the end of an eight-block queue in Tokyo's smart Ginza shopping district.

(Additional reporting by Michael Perry in SYDNEY, Edwin Chan in LOS ANGELES, Isabel Reynolds in TOKYO, Marie Mawad in PARIS, Jens Hack in MUNICH, Christoph Steitz in FRANKFURT, Giles Elgood, Matt Cowan, Kate Holton and Georgina Prodhan in LONDON, Supantha Mukherjee in NEW YORK, and Poornima Gupta in San Francisco; Editing by Mark Bendeich, Alex Richardson, Sophie Walker and John Wallace)