Apple is expected to begin a summer smartphone battle on Monday by announcing details of updated software for the iPhone and new versions of the handset.

Thousands of customers and developers are gathering for the annual Apple Worldwide Developers Conference (WWDC) in San Francisco, which the company has used in the past couple of years to launch updates to the touchscreen mobile phone.

Apple is thought likely to announce at least one new handset with up to 32 gigabytes of memory, video recording, a better camera, a compass, and improved battery life. Rumours on technology blogs suggest that the new version may be called the iPhone Video.

It is also rumoured that Apple is considering releasing a stripped-down, cheaper version of the iPhone with as little as 4GB of memory and fewer features which would sell for as little as $99 (£62) in the US. Any new versions of the hardware are likely to go on sale in July.

Apple has sold more than 21 million iPhones in more than 80 countries since it was launched in 2007. It had about 10 per cent share of the worldwide smartphone market in the first quarter of this year, according to the research company Gartner.

Apple has said that it will give more details at the WWDC of the new iPhone 3.0 operating system, which will include the ability to cut and paste text and an improved search function. The new operating system will be released later in the summer and will be downloadable for current iPhone owners.

Apple will also showcase its new Snow Leopard operating system for Mac computers at the WWDC. Snow Leopard will come out later this year as Microsoft prepares to release its new version of the Windows operating system, used on 90 per cent of the world’s personal computers. Windows 7 will go on sale on October 22, Microsoft said this week.

“Apple is arguably still the leader without new iPhones, but having new iPhone hardware models would definitely help improve its competitiveness,” Shaw Wu, an analyst at Kaufman Bros, said.

The chief challenger to the IPhone in the US this summer will be the Palm Pre smartphone, which launches in the US tomorrow, and is expected to come to the UK later this year.

The Pre, which has received glowing reviews this week, has a touchscreen and a keyboard. Several leading figures at Palm formerly worked at Apple. Palm’s chairman, Jon Rubenstein, led the iPod development team until 2006.

Nokia, which has about 41 per cent of the world’s smartphone market according to Gartner, will begin shipping the much-anticipated N97 handset later this month to more than 70 countries.

The 3.5in touchscreen and qwerty keyboard phone will be available from mid-June in the UK.

Other smartphone models to be launched this summer include a new version of Research in Motion’s BlackBerry Storm touchscreen handset, as well as products from Samsung, Sony and HTC.