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Apple is facing mounting challenges in 2012 to refresh key product lines in the face of rising competition after a year marked by record profits but also the death of its founder and less dramatic design innovation.

A white iPhone, white iPad and white iPod touch were the most noticeable physical changes to Apple's products this year, although it updated its devices' internal hardware and introduced new software and services to retain its edge.

But industry analysts say Apple needs to do much more in 2012 if it intends to stay ahead of rivals and ensure employees are still inspired to work for the world's leading technology company, following the death of co-founder and chief executive Steve Jobs in October.

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"Next year is going to be a pivotal year for the company," says Rob Enderle of the Enderle Group. "Apple for the last decade has clearly led the market and now the market has proved to be very good at being a 'fast follower'."

The tech analyst says Apple, with Tim Cook now chief executive, needs to explore new areas of technology to stay ahead.

An Apple spokesperson did not immediately respond to a request for comment.

Apple hit new heights financially in 2011, with $108-billion in revenues in its fiscal year ending in September – up from $65-billion in 2010 – as well as $26-billion recorded in net income and nearly $82-billion available in cash reserves.

But Android phones now dominate the global smartphone market with a 52.5 per cent market share in the third quarter, more than double that of a year ago, according to the Gartner research firm. The iPhone's share slipped to 15 per cent from 16.6 per cent and Samsung became the number one smartphone maker, shipping 24 million units to the iPhone's 17 million.

More than 6.8 million Apple and Android devices were activated on Christmas day, Flurry, the mobile application research company, said Wednesday. This was more than twice the 2.8 million activations seen on Christmas day a year ago. Google said 3.7 million new Android devices were switched on for the first time on Christmas Eve and Christmas day.

Apple also faces increasing competition for the iPad with the launch of a more touch-friendly Windows 8 from Microsoft in 2012, which should also boost the new Ultrabook PC category, a direct rival to the MacBook Air.

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There is a threat from cheaper tablets such as the Kindle Fire, which Amazon said yesterday had led sales of more than 1 million Kindles a week in December. However, Amazon's shares dipped after a Goldman Sachs analyst suggested it could only achieve $17.9-billion in fourth-quarter sales, falling short of consensus expectations of $18.2-billion.

Tim Bajarin, president of the Creative Strategies research firm and a longtime Apple watcher, says the company will have prepared a road map under Steve Jobs for the next several years and 2012 could be another big product year similar to 2010, when the iPad was first launched and there were major redesigns of the iPhone, MacBook Air and Apple TV.

"2012 will be a highly innovative year for Apple and it will reinvent the iPhone – where a larger screen is in order – the iPad and the MacBook Air," he says.

There have also been multiple reports that Apple is preparing to launch a full assault on the television market.

"The company is smart enough to know that, when the competition starts catching up, you just run faster and do something different and that's what Apple has always done," says Mr. Bajarin.

Additional reporting by Maija Palmer in London.

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Copyright The Financial Times Ltd. All rights reserved.

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