In what should have been just another banner day of product launches at
Apple Inc., the company unexpectedly shaved $200 off the price of the
iPhone, an announcement that sent Apple's otherwise highflying shares
tumbling 5 percent on Wall Street.
Only two months after releasing the iPhone to unprecedented hype and
strong reviews, Apple Chief Executive Steve Jobs said the 8 gigabyte
iPhone will now cost $399. Furthermore, the company is discontinuing
the 4 gb version of the iPhone, which can be purchased for $299 while
supplies last.
"I guess I paid an extra $200 for the privilege of waiting in line for
a few hours," said Tony Marengo of Themactutor.com and the former
manager of the Apple store on Michigan Avenue.
Yet he understands why Apple cut the price: "It will be a blockbuster for the holidays."
That's the message Jobs tried to convey, but Wall Street was miffed.
Apple shares closed at $136.76, down $7.40, on news of the price cut.
"Apple is reacting to what the marketplace is telling them," said Mark
McGuire, an analyst for Gartner Inc. "And the reality is that $600 is a
lot of money for a smart phone targeted at consumers, a relatively new
market segment."
Even as Jobs said the iPhone was on pace to sell 1 million units by the
end of September, there are indications the high price was taking its
toll.
A survey by technology research firm iSuppli found that while the
iPhone was the best-selling smart phone for July, the sales pace has
slowed since the product's launch.
But McGuire said the new price is not so much a concession that the
device was overpriced as an indication that Apple is committed to
delivering a new kind of consumer device.
"It's a signal that Apple is interested in staying in this market, that
$399 is the rational price point for this product," he said.
There is little recourse for iPhone buyers who spent $599 for the
phone, unless they purchased one within the last 14 days, the standard
Apple window for a refund.
The price cut came at the end of a significant slew of new product launches.
For one, Apple is introducing a new iPod, called the Touch, that is
essentially the iPhone without the phone. Like the iPhone, the 16 gb
iPod Touch will sell for $399, and it will include Wi-Fi, a Web browser
and the "cover flow" software to virtually flip through your music
collection with a finger.
The product's similarity to the iPhone also may have led to the price
drop, Marengo said, but he didn't believe it would cannibalize iPhone
sales.
"The Touch will be a hit because the Wi-Fi integration is really
interesting for a music player," he said. "The Web applications that
have been developed so far on the iPhone will now work on this iPod."
Apple also announced updates to its existing product line.
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