Apple also cut prices on several of its Mac notebooks amid a tooth-and-nail battle among computer makers for buyers during the recession.

And to shore up its hold on the smartphone market, it unveiled a new, faster, high-end iPhone that takes videos and has voice features, matching offerings by rivals Palm and Research in Motion's BlackBerry.

Analysts said sales could double for the cheapest iPhone.

Chief Executive Steve Jobs, on medical leave since January, did not put in a much speculated-about appearance.

The next-generation iPhone 3GS -- the "S" stands for speed, double that of the original model -- goes on sale in the United States, Germany and elsewhere on June 19 for $199 to $299.

"They plugged the hole in the offering of the 3G iPhone," Gartner analyst Van Baker said, referring to the new features.

A rambunctious crowd livened up Apple's annual Worldwide Developers' Conference in downtown San Francisco on Monday, whooping and applauding as executives unveiled everything from a cheaper Mac Air notebook to a new operating system.

Shares in Apple closed 0.6 per cent down at $143.85 -- after a 6.5 per cent climb in the week leading up to the highly anticipated event -- as Jobs failed to show and investors debated the merits of the sharp iPhone price cut.

Morgan Stanley estimates that an entry-level iPhone, at what Apple marketing chief Phil Schiller calls a "breakthrough price of $99", could double existing sales. That is for the 8-gigabyte model, previously priced at $199.

Apple said it has sold more than 40 million of its iPhones and music-playing iPod Touches to date, up from the 37 million reported during a quarterly earnings call in April.

The new iPhone models and price cuts announced on Monday came days after Palm launched its Pre smartphone, which some analysts say is the iPhone's closest rival.

Sprint Nextel Corp, which has exclusive US rights to carry the Pre, said it had record sales of the smartphone in its first weekend, and was restocking the phones "as quickly as Palm could make them.

A JAZZED-UP PHONE

The $99 iPhone will cost half as much as the $199 Pre. By slashing the price of the 8-gigabyte iPhone and rolling models out this month, Apple's strategy appeared designed to take advantage of the Pre's limited availability, said CL King & Associates' Lawrence Harris.

In a note to investors on Monday, he estimated that Palm produced just 50,000 Pre phones in May.

AT&T, the exclusive US service provider for the iPhone, will sell the 16-gigabyte 3G for $149, down from $299, while supplies last.

Competition is intensifying among cellphone makers from Nokia to HTC Corp for a slice of one of the few remaining fast-growth tech markets.

Globally, research house Ovum expects 171.9 million smartphones to ship this year, up 23 per cent on 2008 and about 15 per cent of the worldwide mobile phone market in 2009.

But the battle in that lucrative arena is eroding margins.

Apple executives did not comment on impact to profitability from the cheaper iPhone or Mac Air -- which at $1,499 is still costlier than computers from the likes of Dell Inc or Hewlett-Packard Co.

Shaw Wu, an analyst at Kaufman Brothers, said the price cuts could dampen gross margin but noted that Apple had forecast its margin would slip in the current quarter.

Lower costs for components and the extra sales Apple hopes to net should help alleviate the squeeze, he added.

WHAT, ME WORRY?

AT&T said the halving in price would not affect its profit targets, and that it was sticking to its objective for wireless margins in the low 40-per cent range.

Apple's stock is historically volatile during the company's June developer conference. It dropped about 7 per cent over the course of the conference in 2008 and about 4 per cent in 2007.

Much of Monday's event was taken up with new features for Apple's best-selling gadget. Executives announced that new iPhones will support TomTom satellite navigation devices and support multiplayer games such as Asphalt 5.

The consumer electronics giant showed off a new 15-inch notebook with improved battery life, a $300-cheaper Mac Air -- its thinnest laptop -- and, as expected, its highly previewed "Snow Leopard" Mac operating system software.

The company also unveiled a new 13-inch MacBook Pro starting at $1,199, and a 15-inch laptop with longer battery life, addressing a perennial consumer concern.

Some of the hundreds of developers, analysts, reporters and industry insiders that gathered in downtown San Francisco had hoped to catch a glimpse of founder and Chief Executive Jobs.

Suspense and speculation had mounted in the months before Apple's annual Worldwide Developers' Conference, with hopes ranging from a cameo by Jobs -- out till the end of June on medical leave -- to revelations of a game-changing tablet mini-PC or cheaper iPhone.

Jobs, a pancreatic cancer survivor, has not appeared despite speculation he would, after springing his leave of absence on stunned markets in January by saying his health problems were more complex than previously thought.