These are the days in Helsinki when the sun never seems to set. So maybe it's not so surprising that Stephen Elop, the CEO of the beleaguered Finnish phone giant Nokia, rejects the conventional wisdom that his company is as lifeless as the salted cod served in local restaurants. Instead, he sees a moment ripe with opportunity.

Apple's pioneering iPhone has not seen a major reset in many months. Samsung, the dominant player in the Android system, just released a flagship phone with a chaotic blur of features, none of them truly memorable.

So Nokia's unveiling today of the Lumia 1020 represents a chance - maybe the last, best one - to make its case to users, and to demonstrate that there's actually room for the 'third ecosystem' that Elop hopes Nokia will become. The case for the previous Lumias -- the well-received WinPhone operating system, a slick design, and some other nice features - has won a foothold but not much more. For Nokia to gain true momentum, it must provide something new and big. Something that people can not get elsewhere. Something technolust-worthy. Something actually useful. To engage in Elop-speak: a true differentiator.

'The tonality has changed a little bit in the industry. Look at the recent products launched. Their makers say: 'This is the next one.' But is it that innovative? Have they really differentiated this current generation from the previous generation product?'

'The basis we've chosen to compete on is innovation and differentiation,' he says. 'We have to set ourselves apart from the people who are leading the smartphone industry. The tonality has changed a little bit in the industry. Look at the recent products launched. Their makers say: 'This is the next one.' But is it that innovative? Have they really differentiated this current generation from the previous generation product?'

The Nokia 1020 - to be released on July 26 for $300 and a two-year AT&T contract - does have something genuinely unique. It boasts a suite of imaging features built around a technology called PureView, involving what Nokia describes as a '41-megapixel backside illuminated sensor.' Cut the jargon and what you get is a leap in camera tech. The sensor captures so much information that you can do a detailed zoom after you take the picture. It's like a real-time implementation of all the rigmarole that the photographer in the 1966 movie 'Blow Up' went through when he noticed a detail in his photo that proved evidence to a murder. Years after the fact, information stored in these 'superpixels' could unearth similarly amazing, if not incriminating, artifacts.

The Lumia 1020 is also augmented with a Xenon flash that grabs sharp pictures in low-light-images that the iPhone and the Samsung portray as blurs. Nokia has augmented its already excellent capabilities in image stabilization to allow users to capture steady high-def video, even in rocky conditions. And it will be a platform for an endless parade of nifty features. One example available on launch is the ability to use part of an image as an animated GIF while the rest of the image remains a static photo.

PureView really is a differentiator. When I got a demo of it early last year in Nokia's research lab, it was clear that this could make a difference to a lot of users. After all, taking photos is a core smart phone activity. But I was disappointed to learn that Nokia's first implementation of the technology would not be appear in the Lumia series of Windows phones that represented the company's future. Instead, Nokia chose to put its most amazing advances in the PureView 808 - a phone running the doomed Symbian operating system. It was like opening a new Danny Meyer restaurant in Chernobyl.

Elop defends the move now by saying that the 808 was successful on its own terms. 'It sold well,' he said, while not giving any numbers. (But I'll bet most of you have never seen one in the wild.) Its photography-crazy users loved it. But 808's real value was as a test bed for PureView. Nokia was able to gauge from real users how to improve the technology for the next iteration, the one now on the 1020.

Sure enough, this version of PureView seems ready for prime time. To accommodate the advanced camera, the 808 had a hideous unsightly bulge in its middle. It looked like it was momentarily about to give birth to an MP3 player. The 1020 has only a modest rise where around the lens - it reminds me of the stoic eye of HAL in Kubrick's '2001' - and is around the same thickness as the trim Lumia 920.

If this powerful imaging technology had been part of the last iPhone release, the internet would have exploded with Blogosphere hosannas and the lines outside Apple stores would have clogged entire metropolitan areas. But can innovation and differentiation really help Nokia make today's one-on-one smartphone battle into something more à trois? Skeptics - and plenty of people not normally inclined to skepticism - will probably stick to their view that at this point there is nothing Nokia can do to turn things around, and that the Finnish giant will wind up, with Blackberry, in high-tech's dustbin.

But Elop has a point to make about tables turning. 'If you had asked anyone in the smartphone world on January 1, 2007, they would have said Nokia was incomparable,' he says. 'It had such a strong share, so much lock-in, so much brand awareness that no one could challenge it. And yet innovation, disorientation, disruption changed that. It set Nokia on an entirely different trajectory.'

That trajectory turned downward so precipitously that Nokia's very survival is at stake. But Elop believes that PureView - along with future differentiators he says are in the works - will help him paint a very different picture. With 41 million megapixels.

In the retailing wars with Apple Inc. (AAPL), score one for Amazon.com Inc. (AMZN)

A judge's ruling that Apple violated U.S. antitrust laws by colluding to increase e-book prices gives retailers such as Amazon added flexibility to sell digital books more cheaply and gain market share. The decision may also lead to greater government oversight of the iPhone maker's ability to control pricing in other markets, such as music and movies.

'Amazon emerges as the winner from all of the activity related to e-book pricing,' said Tom Forte, an analyst at Telsey Advisory Group in New York. 'The company seems to be free to price the way it wants to, which, by Amazon's standards, is aggressively to gain market share.'

Apple used agreements with publishers to fix prices of e-books, a federal judge in Manhattan ruled yesterday. Those deals helped the company sell reading content that boosted the appeal of its smartphones and tablets, while forcing Amazon to raise prices on some books and abandon the one-size-fits-all pricing that lured users to its Kindle readers. The verdict stands to give Amazon more leverage in negotiations with publishers.

While sales of e-books have exploded in the U.S., they still make up only 20 percent of the market, and those gains are slowing. Last year, e-book sales rose 44 percent to $3.04 billion after more than doubling in 2011, according to the Association of American Publishers.

The U.S. government and 33 state attorneys general sued Apple and five of the biggest publishers in April 2012, claiming the Cupertino, California-based company pushed publishers to sign agreements letting it sell e-books under a model that raised prices and harmed consumers.

Apple fought the lawsuit, seeking to fend off greater oversight and continue the agency model of letting content owners rather than retailers set prices, while generating income by taking a commission.

'Apple is using that agency model in a number of contexts and they chose to use it in part for e-books because they were using it in other contexts,' said Scott Kessler, an analyst at S&P Capital IQ.

Apple is the world's largest seller of music, and established the pricing model where tracks typically sell for 99 cents and albums for $9.99. With movies and television shows, where there is more competition from cable companies and online services such as Netflix Inc. (NFLX) and Hulu LLC, Apple has a less rigid pricing model.

By adopting a new model with higher e-book prices, Apple sought to force Amazon to change its pricing, the plaintiffs argued. At the time, the online retailer was selling titles for $9.99, often below cost. E-books now have a wider price range. More than 650,000 e-books sold by Amazon cost $4.99 or less and more than 1.2 million are $9.99 or less, the company said in May. Currently, the digital version of Dan Brown's 'Inferno' sells for $12.99.

U.S. District Judge Denise Cote said Apple lost the case, in part, because of statements by its deceased founder, Steve Jobs, that government lawyers said showed Apple was targeting Amazon. States are seeking triple damages for overcharges, according to Connecticut Attorney General George Jepsen's office. Another trial will be held to determine Apple's penalty.

'Any financial penalty is pocket change for Apple, but this decision can have a long-term effect,' said David Balto, a former policy director for the U.S. Federal Trade Commission. 'The government can extend this beyond books.'

The ruling gives Seattle-based Amazon leeway in an industry that already accounts for a significant portion of its revenue. Amazon began selling e-books in 2007, and four years later, books for Kindle readers surpassed print sales.

Media, which includes digital content such as books, music and movies, will make up 26 percent of Amazon's total sales in 2014, according to Dan Kurnos, an analyst at Benchmark Co. E-books will account for about half of that, he said.

Amazon's aggressive pricing means the online retailer's massive scale ends up benefiting customers, Kurnos said. Amazon has aligned itself with antitrust laws that seek to protect consumers, making its model difficult to contest, he said.

'Competitive practices are for the benefit of the consumer,' Kurnos said in an interview. 'When was the last time you saw someone get in significant trouble for cutting prices too severely?'

Drew Herdener, a spokesman for Amazon, declined to comment.

While this ruling doesn't affect authors and consumers because the agency model had already been phased out by the publishers' settlement with the government, the decision may pave the way for Amazon to become even more powerful in the book industry, according to Paul Aiken, executive director of the Authors Guild.

With Amazon able to discount e-books at will, that will make digital titles more appealing and could increase pressure on brick-and-mortar bookstores, Aiken said. Fewer bookstores will also only increase Amazon's negotiating power with publishers. For those chains that do offer e-books, like Barnes & Noble Inc. (BKS), competing with Amazon will be even harder considering that in the past it's sold best-selling digital titles at a loss.

'If one is concerned about competition in the book industry, a healthy retail sector is critical,' Aiken said. 'That now seems to be very much in doubt.'

Apple argues that it wasn't fixing prices and was trying to create more competition in a market dominated by one player.

'Apple did not conspire to fix e-book pricing and we will continue to fight against these false accusations,' said Tom Neumayr, an Apple spokesman. 'When we introduced the iBookstore in 2010, we gave customers more choice, injecting much needed innovation and competition into the market, breaking Amazon's monopolistic grip on the publishing industry. We've done nothing wrong and we will appeal the judge's decision.'

The company's appeal isn't likely to prevail and a final penalty could be in place within a year, said Christopher Sagers, a law professor at Cleveland State University. The ruling may put Apple in a similar situation as Microsoft Corp. (MSFT), which faced increased oversight as part of its deal to resolve antitrust charges. The software maker was subject to periodic status reports to check whether it complied with its settlement with the government.

'We're likely to see pretty broad, invasive government monitoring,' Sagers said. 'This case could have a big effect in how they set up new businesses.'

To contact the reporters on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net; Danielle Kucera in San Francisco at dkucera6@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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Technology companies are paying out dividends at the fastest pace in more than a decade, boosting cash returns to appease investors dismayed by slowing growth.

Led by Apple Inc. (AAPL) and Cisco Systems Inc. (CSCO), technology companies in the Standard & Poor's 500 Index distributed $10.8 billion in dividends in the most recent quarter, up from $5.1 billion in the same period in 2010. They paid a record $11.9 billion in dividends in the previous quarter, according to data compiled by Bloomberg.

Their average dividend yield, a metric for measuring payments in the past 12 months as a percentage of market value, stands at 1.21 percent for technology companies, the first time it has exceeded 1 percent in at least 15 years, the data show.

Apple, Cisco, Dell Inc. (DELL) and their peers have a total of $590 billion of cash on hand, up from $508.5 billion a year ago and $436.5 billion two years ago, according to data compiled by Bloomberg. Dividend payouts are likely to keep rising as once-cash-strapped startups become larger, slower-growth companies -- a shift that may raise expectations that holdouts such as Google Inc. will follow suit, said Jennifer Koski, a finance professor at the University of Washington in Seattle.

'These companies are now grownups,' Koski said. 'They are more developed in their life cycle, they are profitable and they don't need as much in terms of capital.'

The cash reserve numbers are likely to be even larger when technology companies start reporting quarterly earnings, with Intel Corp. (INTC), Microsoft Corp. and Google announcing results next week. Apple's report will follow on July 23.

The average per-company payout for hardware and software makers has reached $154.9 million, compared with $151.1 million for all companies in the S&P 500, according to data compiled by Bloomberg. That's a shift from years past, when technology firms traditionally avoided dividends out of concern that they signaled a slowdown in innovation and growth, said Barry James, president of James Investment Research Inc. The firm oversees about $3.5 billion, including shares of Microsoft, which initiated a dividend in 2003.

'It takes off some of the growth luster,' James said.

Apple for years held its ground, with late co-founder Steve Jobs spurning investor requests for a dividend before he handed the reins to Tim Cook, who became chief executive officer in August 2011. In March 2012, Apple unveiled its first dividend in 17 years, heeding investors who had been clamoring for a bigger slice of the company's cash pile, which at the time had swelled to almost $100 billion, bolstered by demand for iPhones and iPads.

That wasn't enough for some investors, as the Cupertino, California-based company continued to rake in money, boosting its cash hoard to $137.1 billion at the end of last year. Investors, led by hedge-fund manager David Einhorn of Greenlight Capital Inc., lobbied Cook to return more money as Apple's stock price languished.

In April, the company unveiled a plan to add $55 billion to its dividend and buyback plan, for a total of $100 billion. The announcements came the same day Apple reported its first profit drop in a decade, and were followed in May by a congressional hearing at which senators accused the company of using loopholes and offshore entities to avoid paying some U.S. taxes.

The industry's dividends are rewarding firms such as BlackRock Inc., Vanguard Group Inc. and State Street Corp., which are the largest shareholders in both Apple and Cisco.

The rising payouts also make technology firms more attractive to value investors, or those who are looking for stable and steady returns, a shift for an industry that has long been a favorite of hedge-fund managers and investors looking for fast gains, Koski said.

Still, technology companies' payouts remain a drop in the bucket compared with the cash they generate each quarter. The industry produced $57.4 billion in cash flows in the first quarter, excluding dividend payments, according to the data. There have only been three other quarters since 2001 where that cash figure was higher.

The new wave of payouts will increase pressure on those technology companies with big balance sheets that don't pay a dividend, James said. Of the 70 companies classified by the S&P 500 as technology, 36 pay dividends, according to data compiled by Bloomberg.

Microsoft, Intel (INTC), International Business Machines Corp. and Oracle Corp (ORCL). are among the technology companies that have paid dividends since before 2010 and have steadily increased the payments.

Google, owner of the world's largest Internet search engine, doesn't pay a dividend, even though it has $51.6 billion of cash and investments. Tim Drinan, a spokesman for Google, declined to comment on the possibility of a dividend.

'People have to get their head around the psychology of this and change their mindset,' James said. 'It's a perception problem.'

To contact the reporters on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net; Shin Pei in New York at spei@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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Credit: Reuters/Aly Song

A man looks at his Apple iPad in front an Apple logo outside an Apple store in downtown Shanghai March 16, 2012.

U.S. District Judge Denise Cote in Manhattan found 'compelling evidence' that Apple violated federal antitrust law by playing a 'central role' in a conspiracy with the publishers to eliminate retail price competition and raise e-book prices.

Wednesday's decision could expose Apple to substantial damages. It is a victory for the U.S. Department of Justice and the 33 U.S. states and territories that brought the civil antitrust case. The five publishers previously settled.

Apple was accused of conspiring to undercut Amazon.com Inc's e-book dominance, causing some e-book prices to rise to $12.99 or $14.99 from the $9.99 that the online retailer charged. Amazon once had a 90 percent market share.

'Apple chose to join forces with the publisher defendants to raise e-book prices and equipped them with the means to do so,' Cote said in a 159-page decision. 'Without Apple's orchestration of this conspiracy, it would not have succeeded as it did.'

The decision was not a total surprise as Cote had indicated before the 2-1/2 week non-jury trial began on June 3 that Apple's defenses might fail.

'This result is a victory for millions of consumers who choose to read books electronically,' Bill Baer, head of the Justice Department's antitrust division, said in a statement. 'This decision by the court is a critical step in undoing the harm caused by Apple's illegal actions.'

Baer said Cote's decision, together with the earlier settlements, help consumers by reducing prices of e-books.

Cote set an August 9 hearing to discuss remedies, and plans to hold a trial on damages. She also ordered both sides 'to pursue settlement discussions' under the supervision of her colleague, U.S. District Judge Kimba Wood.

Amazon now controls about 65 percent of the e-book market, while Barnes & Noble Inc has about 20 percent and Apple a single-digit percentage, according to Albert Greco, a book industry expert at Fordham University's business school.

APPLE PLANS TO APPEAL

In a statement, Apple said it will appeal Cote's decision.

'Apple did not conspire to fix e-book pricing,' spokesman Tom Neumayr said. 'When we introduced the iBookstore in 2010, we gave customers more choice, injecting much needed innovation and competition into the market, breaking Amazon's monopolistic grip on the publishing industry. We've done nothing wrong.'

Last year, Apple settled a separate antitrust case over e-book pricing with the European Commission, without admitting wrongdoing.

The alleged collusion began in late 2009 and continued into early 2010, in connection with the Silicon Valley giant's launch of its popular iPad tablet.

Only Apple went to trial, while the publishers agreed to pay more than $166 million combined to benefit consumers.

The publishers included Lagardere SCA's Hachette Book Group Inc, News Corp's HarperCollins Publishers LLC, Pearson Plc's Penguin Group (USA) Inc, CBS Corp's Simon & Schuster Inc and Verlagsgruppe Georg von Holtzbrinck GmbH's Macmillan.

Geoffrey Manne, who teaches at Lewis & Clark Law School in Portland, Oregon, said Cote's decision may not change the e-books market much because of the earlier settlements, which ended the publishers' pricing arrangements with Apple.

Shares of Apple closed down $1.62 at $420.73 on the Nasdaq.

Steve Berman, a partner at Hagens Berman Sobol Shapiro pursuing consumer class-action litigation against Apple, called Cote's decision 'a very big deal.'

'It exposes Apple to hundreds of millions of dollars in damages, which is what we'll ask for,' Berman said.

Apple ended March with nearly $145 billion of cash and marketable securities. It plans to spend $100 billion on share buybacks and higher dividends through 2015.

STEVE JOBS' EMAIL

Amazon's strategy involved buying e-books at wholesale and then selling them at below cost, in an effort to promote its Kindle reading device.

Apple, in contrast, entered into 'agency agreements' in which publishers were able to set prices and pay 30 percent commissions to the Cupertino, California-based company.

The federal government said this arrangement pushed Amazon into a similar model and resulted in prices of e-books from the five publishers increasing by 18 percent.

'What happens next may depend on Amazon,' said Keith Hylton, a Boston University law professor and antitrust specialist. 'If Amazon feels a need to keep driving e-book prices down to maximize Kindle sales, it could put downward pressure on prices overall, and perhaps help Amazon win market share back.'

Amazon spokesman Drew Herdener declined to comment.

Evidence in the case included emails from Apple's late co-founder, Steve Jobs, to News Corp executive James Murdoch that the government said reflected Jobs' desire to boost prices and 'create a real mainstream e-books market at $12.99 and $14.99.'

Those emails hurt Apple's case.

'Apple has struggled mightily to reinterpret Jobs' statements in a way that will eliminate their bite,' Cote said. 'Its efforts have proven fruitless.'

Cote also rejected Apple's argument that it would be unfair to single out the company when Amazon and Google Inc, among others, entered similar agency agreements with publishers.

Apple argued that it had never understood that publishers might have discussed higher prices before the iPad launch.

'There is no such thing as a conspiracy by telepathy,' Apple's lawyer Orin Snyder said in closing arguments on June 20.

The Justice Department said at trial that it wants to block Apple from using the agency model for two years. It also wants to stop Apple over a five-year period from entering contracts with clauses designed to ensure it offers the lowest prices.

The case is U.S. v. Apple Inc et al, U.S. District Court, Southern District of New York, No. 12-02826.

(Reporting by Nate Raymond and Jonathan Stempel in New York; Additional reporting by Alistair Barr; Editing by Gerald E. McCormick, John Wallace and Dan Grebler)

A federal judge today held that Apple violated antitrust laws by orchestrating a scheme with publishers to raise electronic-book prices, meaning the tech innovator may face a trial for damages over the alleged scheme.

The decision by U.S. District Judge Denise Cote was a victory for the Justice Dept., which sued Apple along with publishers HarperCollins, Hachette, Macmillan, Penguin Group and Simon & Shuster last year, The government said Apple's actions drove prices up 18% by inducing rival Amazon.com to abandon its $9.99 pricing for best-selling e-books. But it's a puzzling result given that Apple's contracts set price ceilings, not floors, and were based partly on Apple's wildly popular and simplified iTunes scheme.

Apple is being penalized for introducing a new way of selling the printed word online, by providing the electronic marketplace for publishers and taking a fee for every unit sold. That upset the old wholesaling approach, in which marketers bought works at a discount and sold them for what the market would bear. Whether it is illegal will surely be tested in higher courts.

'When firms come up with new pricing schemes that force other companies to adopt new schemes, that's a good thing,' said George Priest, an antitrust professor at Yale Law School has written critically on the failure of antitrust law to keep up with technological innovation. 'This will be appealed, I assure you. And I am not certain it will stand.'

The publishers settled with the government, amid strong evidence they had engaged in discussions on how to substitute Amazon.com 's 'wretched' $9.99 price for e-books for something more lucrative. According to Judge Cote's ruling, Jobs held off on introducing an Apple book store until the launch of the iPad, which he considered the first suitable electronic reader, and then pushed hard for a pricing scheme that would be simple and profitable for Apple and the publishers.

Judges have long had trouble making old concepts of antitrust law fit rapidly evolving technology. Microsoft , for example, faced a barrage of antitrust litigation after it drove Netscape out of the browser business by offering Internet Explorer for free. What looked like an anticompetitive assault on Netscape to some was, for others, no different than car manufacturers bundling an FM radio with each new model instead of requiring owners to buy their radios on the aftermarket. The concept of illegal 'tying,' or forcing consumers to buy one product in order to get another, is difficult to square with the digital-era practice of constantly adding features to products as their marginal cost drops to zero.

The conspiracy theory against Apple was odd, too, given that it required the judge to conclude that Apple, as a new entrant into the e-book business, had the power to end incumbent Amazon.com's $9.99 pricing. Key to the conspiracy was Apple's shift from a wholesale model to an 'agency' model under which publishers set their prices and Apple collected a 30% cut.

That alone wouldn't necessarily violate antitrust laws, but Cote said Apple became central to the conspiracy when it also negotiated 'most favored nation' clauses with the five publishers allowing it to drop prices to match the lowest e-book prices on the Web. The judge said those MFN clauses encouraged the publishers to collude and pressure Amazon to adopt a similar scheme.

The clauses 'literally stiffened the spines of the Publisher Defendants to ensure that they would demand new terms from Amazon,' the judge said.

Apple argued it negotiated individually with the publishers and didn't know they were engaging in illegal talks behind the scenes (according to the decision, executives met over dinners in New York, without corporate lawyers, to discuss how to deal with Amazon's aggressive pricing.) It also presented evidence that prices actually fell over the two-year period after it introduced the iPad and the new e-book pricing scheme in early 2010. The judge disregarded that evidence, saying it failed to control for other changes in the electronic-book marketplace.

There was plenty of damaging evidence in the case, including statements Jobs made to a reporter after the launch of the online book business. The reporter asked how Apple would compete with e-books priced at $12.99 when they were available on Amazon for $9.99. 'The price will be the same,' Jobs said, because publishers would soon begin withholding their works from Amazon.

Such evidence makes for compelling reading - and potentially devastating damages. The Justice Dept. hailed the decision, which leads the way for a trial on damages, calling it a critical step in undoing the harm caused by Apple's illegal actions.' Justice says Apple's actions raised prices 18%.

I'm reminded, however, of an epic antitrust trial in Galveston, Tex. that I covered in the early 1990s in which several airlines sued American Airlines over its short-lived simplified pricing scheme. That case featured some of the most talented trial lawyers on the planet, including Joe Jamail, David Boies, and Finis Cowa n, and lots of juicy evidence. (The judge refused to allow in the best evidence of all, a taped phone conversation between former AMR Chairman Bob Crandall and his counterpart at Braniff Airlines, in which Crandall offered to raise fares out of Dallas if Braniff did the same.)

The other airlines argued American tried to drive them out of business by substituting the convoluted pricing that emerged in the wake of airline deregulation with a simplified fare schedule which, they argued, set prices below cost. American said it was trying to make things easier on consumers by setting fares in simple bands.

The main problem with the case was one that academics like Priest have pointed out for years: so-called 'predatory pricing' is unlikely to succeed because a company trying to drive competitors out of the market by pricing below cost will bankrupt itself in the process. What looks predatory to a disgruntled competitor might simply be an innovation designed to drive more purchases by consumers. American failed with its pricing scheme, but Southwest Airlines became the most profitable carrier in the business by lowering prices and stimulating demand.

Priest said there have been other examples of technology and innovative pricing combining to produce big antitrust cases. IBM battled the government for years over its mainframe computer business, for example. Big Blue could charge customers more for its mainframes because they provided greater value, Priest said, not because it controlled the market for computing.

The main entrance to Apple's headquarters in Cupertino, Calif. (Photo: AFP/Getty Images)

Apple was the market's speedboat, but now, the stock is acting more like an anchor.

The market is bursting higher, and the Standard & Poor's 500 is up 15.9%, and 1.0% below its record high. Meanwhile, the tech-laden Nasdaq is at its highest point in this bull market, at levels not seen since late 2000. Yet, one stock noticeably absent is Apple, which, not long ago, was the most valuable stock in the market and widely believed to be the engine of growth.

Clinging to Apple is getting expensive. The stock has fallen 21% this year, a clear sign that large investors have moved on. The S&P's 2013 gain would have been 17.4% without Apple, says S&P Dow Jones Indices.

Many investors who stuck with Apple as it dropped are individuals, says Ryan Detrick of Schaeffer's Investment Research. 'The institutions are getting out,' he says.

The effects of Apple's downfall are far-reaching and include the loss of:

* Importance on Wall Street. Apple was so dominant a year ago, analysts had to look at the market both including Apple and excluding it. Apple commandeered the Nasdaq 100 index for instance, accounting for more than 20% of its value in 2011. The Nasdaq 100 is a collection of the most valuable 100 non-financial stocks in the Nasdaq. The stock's current weighting is 11.4%. Apple is now only expected to bring in 2.9% of the earnings of the S&P 500, down from the 6% peak in the fourth quarter of 2011. Pain in tech is greater, as the information technology sector is down 1.3% since Apple hit its high on Sept. 19, 2012. Without Apple, it would be up 11.4%, says S&P Dow Jones.

* Market leadership role. Much of the market's current power is coming from shares of smaller, less-followed companies that have exciting new products and innovation ahead of them, Detrick says. The Russell 1000 index of small stocks, which excludes Apple, hit another record Wednesday. 'Money is rotating and going into different areas,' he says. Financials, too, have been leaders that have picked up for Apple's slack.

* Standing among big-name tech firms. While Apple struggles, tech investors are happy to shift to faster-growing tech firms such as Amazon and Priceline, which are becoming the new tech leaders, says Ken Winans of Winans Investments.

The fact that so many individual investors piled into Apple at or near its peak, yet failed to get out, underscores why many are disappointed even as market indexes hit new highs, Detrick says. While diversified investors are enjoying the rally, people still waiting for Apple's comeback, 'do not feel that way,' he says.

Apple iPhone 5 displayed in Apple store. (Photo: AP)

The other night, my wife and I were at a bar and both on our respective smartphones -- she on her iPhone and I on my Android. I, being the far more awkward and self-conscious one, was holding my device below the bar with one hand so as not to appear like we were a couple who would spend an entire evening staring into glowing screens rather than each other's faces, albeit momentarily for a quick email.

But as we composed our messages, I noticed the way we were sitting. My wife had both elbows on the bar and used her thumbs to type in her message. Meanwhile, I was holding my phone with one hand near my leg and using my thumb to swipe the email into my phone. And I realized our body language was all due to the different keyboards we were using.

Since the very first model, iPhone users have been locked into Apple's default keyboard, unable to switch to or install a third-party input method. However, Android, since it allows for a multitude of customization options, has a wealth of various third-party keyboards and input methods -- ranging from the tried and true, like Swype and Swiftkey, to the outright bizarre, like the learning curve-heavy 8pen.

Although Apple isn't alone in its steadfast devotion to a default keyboard -- BlackBerry and Windows also don't permit users to switch either -- it's extremely unfortunate that Cupertino hasn't allowed for different keyboards at any point in its mobile lines' lifespan. Personally, after using a swipe-to-compose method on Swype, Swiftkey, and Google's default keyboards, I can't imagine ever going back to a tap-type interface for any mobile device in the future. To me, the speed, ease, and functionality of Swype is so far beyond a simple keyboard that I invariably make a face every time I have to compose a message on my wife's iPhone.

But why has Apple kept users locked into its stale keyboard and, by extension, denied iPhone owners the customization to change the overall look of their iPhones beyond wallpaper and icon arrangement?

The Guardian's Charles Arthur recently spoke with Swiftkey's chief marketing officer Joe Braidwood about Apple's refusal to switch up the keyboards on the iPhone, iPad, and iPod Touch.

'We were disappointed that Apple didn't liberalize its mobile OS to allow third parties to innovate the typing experience,' Braidwood said, referring to the dashed hopes of Cupertino's big unveiling of iOS 7 last month. 'We're strong believers that improving the text input experience is one of the real areas for improvement in iOS, and some of the tweaks that have happened to the autocorrection engine in iOS 7 only act to underline that assertion.'

Arthur suggests that a major reason why Apple hasn't opened itself up to third-party keyboards is the company's paranoia that it would usher a flood of data-stealing keyloggers into the mobile marketplace. This, despite the fact that Swype and Swiftkey have never been accused of stealing data and that every piece of software that comes across Apple's App Store is so heavily vetted that it's nearly impossible to slip malware past the mighty banhammer. Besides, as long as Apple denies app installation outside of the App Store, there isn't much to worry about.

But Braidwood's theory on Apple's fear of customization touches upon something much larger.

'The real point that we've heard here relates to wanting to protect the user's experience.' he said. 'This would seem to be framed around wanting to avoid confusion and inconsistency rather than the risk of malware.'

While I wholeheartedly agree with Braidwood's assessment, I think it has to do with one much more than the other.

Installing and switching to a different keyboard is hardly confusing. Swype and Swiftkey installs number in the tens of millions. In fact, the latest version of Google's default keyboard comes with a swiping input method built in and allows users to toggle the feature on and off. So if Google allows a souped-up version of its default keyboard, one that's quickly and easily changeable with a checkbox in a settings panel, why doesn't Apple?

It has a whole lot to do with consistency.

Take a passing glance at a crowd of people on their smartphones and it's easy to tell which ones are using iPhones. Aside from the largely unchanging hardware, the iPhone interface extends beyond just the native Apple apps and into nearly all third-party software, making it instantly recognizable. Although you might have difficulty telling the difference between an iPhone and Android user playing Angry Birds at 20 paces, if either of them are in the middle of an email, it's pretty apparent.

Comparatively, Android devices are a lot of things, but consistent isn't one of them. Hardware comes in all shapes and sizes, and the UI has noticeable differences between each stock Android version -- and that's not even getting into the manufacturer skins, widgets, third-party app launchers, and ROMs that throw everything into new and wholly unrecognizable territories.

That's a far cry from the familiar look of an iPhone -- pre-iOS 7, at least.

One could argue that it's all in the name of support and security, but really, it's all about brand identity. With the amount of customization an Android user can apply to his or her device, after a while it ceases to be a Google phone. It becomes that person's phone.

And considering the company's 'walled garden' philosophy, Apple doesn't want people to have their own phone. Apple wants people to have its phone.

Cupertino is notoriously nitpicky when it comes to default software. Sure, Google apps can readily be installed and often surpass Apple's native offerings in terms of quality and functionality, but its native software will always be the automatic go-to app when clicking on a hyperlink or composing an email. Homescreen widgets are still forbidden, and don't even think about app launchers or custom ROMs. Unfortunately, it's that stubborn loyalty to the 'Apple experience' that conflicts with customization and doesn't leave iPhone users with a whole lot of choice.

And ultimately, the iPhone's consistency plays a large role in that aforementioned crowd metaphor. You can always tell when a stranger is using an iPhone. It's always recognizable and fully lends itself to brand identity. However, given the amount of customization, it's more difficult to pick out an Android user from a crowd.

All you can tell is that they're not using an iPhone.

Samsung is in the final stages of developing its Note 3 smartphone, with a possible unveil on September 6th for launch in October. The Note would compete against the Sony Xperia and the HTC One and of course whatever new iPhone Apple has planned. It looks as though, once again, Samsung could be offering a family of devices rather than just one.

Meanwhile Samsung is also driving down the cost of its summer flagship the S4 (I'll write about it later) to take on Apple on price.

Samsung launched the Galaxy S4 in April and followed up with three S4 variants in June. They are just coming to market now. It's a novel strategy that allows Samsung to incorporate a variety of phone specifications under one flagship banner and gives diverse and less highly specified phones better brand equity in the battle with the iPhone.

Rumors around the Note 3 have been circulating for weeks but recently Samsung posted information relating to a possible launch. According to Phonesreview.co.uk

Samsung has posted UA Prof Files for models SM-N900T and SM-N900A that are believed to be for the Galaxy Note 3, and these User Agent Profile files are actually specification files that can often describe the model, screen size, and other specs ahead of the device going official.

Further research by Android Beat suggested there would be at least three variants of the Note 3 based on the discovery of 4 SM-N900 numbers.

Rumors about Samsung and Apple vary by geography. In the US, the expectation is that the iPhone 5s will not include a significant form factor change, nor an improved display, though there have been rumors of a Retina +. Many of the improvements are thought likely to come from the iOS 7 upgrade, providing, for example, slow motion video (already available on the S4), which also suggests an improved camera.

Rumors on the Indian sub-continent have the Note marked down as a full HD 6″ AMOLED display with an Octa processor and an aluminum casing. The next iPhone is rumored, there, to be a 4.8″ HD Retina with IGZO back panel.

The 6″ AMOLED would make the Note 3 very expensive to produce. The iPhone on the other hand would be at the mercy of Sharp's production lines and precarious finances. IGZO though has significant benefits. The Wall St Journal reports that IGZO 'promises twice as much battery life, sharper images and a more than fivefold increase in the sensitivity of touch screens for smartphones and tablets.'

Sharp initially had overheating problems when ramping up IGZO production but has bigger issues with its own finances. Motley Fool reports: 'the company's cash reserves still continue to shrink down to just $1.70 billion by December, dropping by 16% since March 2012. During this period, Sharp's current liabilities increased by 18.1% to $17 billion - nearly ten times as much as its cash reserves. Moreover, there is a $2.1 billion convertible bond due in September.'

Sharp took a $111 million investment from Samsung earlier in the year, and Samsung now has investments in both IGZO and Quantum Dot technology, the two ways Apple could produce an immediate, significant improvement in the Retina's display quality.

It would be a surprise if Samsung opts for an HD AMOLED screen, especially if it intends to have a 6″ display on the Note 3 (it might be slightly smaller at 5.7″) because of the cost. Why not use LCD and IGZO? Or LCD and Quantum Dot? Both of these would be cheaper alternatives.That is, more or less, what Samsung did with the S4.

It launched with a highly impressive HD AMOLED display and then relaunched variants with LCD displays. It might similarly hedge its bets with the Note, though the IGZO display is said to be more sensitive to a Stylus, a big selling feature of the Note.

Whatever option it chooses though it is clear that Samsung is positioning the Note 3 at the very high end in order to further diversify choice for consumers as the iPhone 5s hits the market.

FORTUNE -- On April 24, the day after Apple ( AAPL) reported its earnings for fiscal Q2, Cowan and Company's Matthew Hoffman published a revised forecast for the following quarter.

Talk about lowered expectations!

Based on the forward-looking guidance Apple gave analysts during the April 23 conference call, Hoffman cut his fiscal Q3 revenue estimate from $40.8 billion to $35.4 billion, a $5.4 billion (13%) haircut.

He also cut his his iPad unit sales estimate by 26%, his EPS estimate by 27% and he shaved 4.6 percentage points off his gross margin.

Hoffman's revisions were more extreme than most, but they were not unique, and his new numbers are still somewhat higher that the Street's consensus.

On July 24, according to Thomson Financial, Wall Street expects Apple to report earnings of $7.33 on sales of $35.17 billion.

Even that is too optimistic, according to Fortune's preliminary survey. The median revenue estimate from the 35 Wall Street analysts who have responded so far is $35.02 billion.

That's an interesting number, because $35.02 billion happens to be precisely what Apple reported in the same quarter last year. In other words, Apple's revenue growth year over year would be zero.

Our panel of independent analysts is, as usual, somewhat more bullish. The median revenue number from the 17 indies we've heard from is $36.16 billion.

What's happened to Apple's quarterly earnings over the past year is another story.