Price cuts and improved features to combat launch of rival Palm Pre

Apple served up a new, faster version of its uber-popular iPhone, with a video camera, more memory and a slew of new features, redoubling its effort to stay ahead of the pack in the increasingly competitive smartphone market.

It is also halving the price of its existing 8-gigabyte iPhone, in an effort to strangle at birth the new Palm Pre, which tech experts are saying could be the first phone to match Apple's hype.

The new top-of-the-range iPhone 3GS is the highlight of Apple's annual software developers conference in San Francisco, which opened yesterday. And while its launch wowed the crowd, there was disappointment that Steve Jobs, Apple's legendary founder and visionary-in-chief did not make a cameo appearance.

The iPhone 3GS has 32-gigabytes of memory, twice as much as the current biggest iPhone. It will cost $299 in the US, and a $199 16-gigabyte version will also be available. In 3GS, the S stands for speed. It has the same design as iPhone 3G released last summer, Philip Schiller, Apple's worldwide marketing chief said at yesterday's conference, but what's inside is new. Messaging applications, games and attachments all load faster, Mr Schiller said. As expected, there's a better built-in camera, with 3-megapixels, autofocus and video camera.

Much of the success of the iPhone is down to the rich availability of "apps" – software applications, such as games and other services – which run on the device. Scott Forstall, senior vice president of iPhone software at Apple, said yesterday there are now more than 50,000 apps available in the company's online App Store. Apple has sold more than 40 million iPhones and iPod Touch devices, which also run these. The release of an updated iPhone comes as Apple is facing tougher competition in the smartphone market. Its sales still trail those of the Blackberry, made by Canadian firm Research in Motion.

Meanwhile, Palm scents that it might be able to turn itself from an also-ran to a frontrunner in the smartphone market, thanks to the enthusiastic reviews and strong early sales of the new touch-screen Palm Pre, which was released at the weekend. In the first 48 hours, the company appears to have sold more than 50,000 devices, according to analysts. Some estimates put those early sales at 100,000.

Although that is far from the 270,000 iPhones sold in the 30 hours after its US debut in 2007, it represents a renaissance for Palm. There were reports of some customers being turned away from stores by Sprint, the mobile operator that is exclusively selling the Pre, or being put on waiting lists. Those difficulties look likely to build an additional buzz over the phone, but Palm shares actually fell almost 10 per cent yesterday because of concerns the little company may not be able to keep up with demand.

As the more than 5,000 software writers converged on the Moscone Centre in San Francisco for the chance to meet official Apple developers and to network with each other, the chatter was over whether Steve Jobs, Apple's legendary founder, might cut short his medical leave and make a cameo appearance.

However, Mr Jobs has been on sick leave since January after finally admitting a protein-related illness which saw him lose alarming amounts of weight last year. He is due back at work around the end of this month.