SAN FRANCISCO/NEW YORK - APPLE'S latest iPhone hit stores on on Friday with new features and faster speeds, drawing some fans, but not the crowds that had swarmed the previous iPhone launches.

At the company's flagship New York store in Midtown Manhattan, hundreds of shoppers lined up before the 7 am opening to buy the iPhone 3GS, but the line was shorter than for the first iPhone in 2007 and for last year's 3G model.

"I was waiting for something better than the 3G," said Hirem Shaw, who bought the 32-gigabyte version of the 3GS priced at US$299 (S$435). The 16-gigabyte model costs US$199.

Mr Shaw said he was drawn to the new phone's faster speed and higher capacity, but complained about the service contract with AT&T, the sole US carrier for the iPhone.

"The price for the phone is not that expensive, but the AT&T contract was like an arm and a leg. The contract for two years is like US$3,600. Just for the service," he said.

The 3GS smartphone features a faster processor, longer battery life and the ability to take videos. But because many people had already preordered the new phone, which offers a more modest technological leap over the 3G, analysts predicted the first-day throng would be less than in previous launches.

Apple has not disclosed sales targets for the new phone, but AT&T said on Friday that early sales had exceeded its own expectations. "We've sold hundreds of thousands through our preorder process," said AT&T spokesman Michael Coe.

Cupertino, California-based Apple released its first iPhone two years ago, and it quickly became a consumer phenomenon. The second-generation 3G model was released last summer.

Apple has sold more than 40 million units of the iPhone and iPod Touch, which uses the same software. The touch-screen phone competes with the more business-oriented BlackBerry from Research in Motion Ltd and Palm's new Pre, which has seen solid demand since its release this month.

Broadpoint Amtech analyst Brian Marshall expects Apple to sell some 5 million iPhones in the June quarter, up 32 per cent from the previous period. He said AT&T could see 1 million activations of the 3GS by the end of the month. -- REUTERS