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Apple does the unthinkable with the iPhone

Do you hear that sound? It's the sound of thousands of iPhone customers crying their hearts out. In addition to the new iPods, ringtones for the iPhone and iTunes Wi-Fi Music Store, Apple has announced a price cut for the iPhone.

Apple has dropped the 4GB model from the iPhone lineup. Its sales have been lagging behind the more spacious 8GB model so Apple decided to remove the dead weight. In addition, Apple has cut the price of the 8GB iPhone by $200 – the device will now retail for $399.

This move by Apple even undercuts the pricing for refurbished iPhones that was announced in late August. Refurbished 4GB and 8GB iPhones were listed on the Apple Store for $399 and $499 respectively.

Apple is being quite aggressive with its iPhone and the $200 price cut leaves room for a 16GB model on the high end in the future. Considering that the iPhone-esque iPod touch comes in a 16GB model, the move is inevitable.

Update 9/5/2007:
Although Apple is discontinuing the 4GB iPhone, that isn't stopping the company from offering it for $299 at the Apple Store until the supply is exhausted.


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RE: Wow
By ChristopherO on 9/5/2007 5:17:16 PM , Rating: 3
They never would drop the price if it were selling up to expectations. That's a universal constant of economics. Like the speed of light, the ratio of pi, etc.

The device was released in *late* June. The July numbers were front-loaded and almost entirely represented the die-hard fans that wanted one. The monthly numbers don't represent normal purchases. The price cut can only be seen as a panic move because the later July and August numbers more than likely cratered (we'll need to wait till the quarterly reports).

Put in perspective, that would have been like Microsoft cutting the price of the 360 down to $250 by mid-January 2006. Obviously that would be a very bad thing... A company *never* does that when selling well. Even worse, they will have just succeeded in royally ticking-off people who bought the device in the last 60 days (i.e. since launch). More than likely Apple/AT&T will need to apologize to those users with a rebate or else risk negative back-lash (anyone who purchased within the last 14-30 days can demand a rebate since many states allow you to cancel without penalty early in a contract).


RE: Wow
By miccla on 9/5/2007 5:40:48 PM , Rating: 1
companys do sometimes cut prices even if the product is selling well to try and completely stamp out their competition...or incoming competition into the market.
Also apple have room to cut prices as they sell the iphone above "estimated" production costs unlike the xbox which was sold at a loss


RE: Wow
By rklaver on 9/5/2007 5:53:04 PM , Rating: 3
also not to mention, supposedly Apple still gets a cut for every AT&T iPhone plan sold. So a new influx of customers to AT&T still means cash flow.


RE: Wow
By ChristopherO on 9/5/2007 6:05:21 PM , Rating: 3
The big difference is they told investors they were planning on selling 10 million in the first year at a price point of $499-599.

They haven't revised their volume estimates. They would have made a public announcement had they expected better numbers thus preventing their share price from dropping almost 6% (when including after-hours). The basic rule of politics applies, no news = bad, good news is almost always shared (and will be if there is a need to revise price).

Thus they didn't accomplish anything except meet their own volume expectations, albeit while setting a price where they will make a lot less money... There is no economic positive from this news. Perhaps consumers might rejoice, but this doesn't change the fact that the share price was bid up to reflect much higher anticipated revenue.

There is no released competition against this device. It might sound logical, but alas no company will lower their price preemptively. You can deliberately make the market less profitable to avoid competition, but that only works against start-ups. Their competitors are deeply capitalized and that reason will not apply.


RE: Wow
By Oregonian2 on 9/5/2007 6:40:05 PM , Rating: 2
Some of the pundants were saying a million or more sales that first weekend. Jobs said in his speech that the millionth sale will be soon (meaning it hasn't happened yet). Wasn't there a cell phone "record" where 3 million sold the opening weekend or some such? I forget so easily.. :-)


RE: Wow
By Zandros on 9/5/2007 7:06:29 PM , Rating: 1
Didn't they say 10 million for the first full year? No one could have expected them to not do something about prices or a product refresh during a full year and a half, right?


RE: Wow
By ChristopherO on 9/5/2007 10:32:37 PM , Rating: 4
The Xbox 360 held its original price for almost 2 years (selling at a loss has zero relevance since we're talking about a revenue deficiency in relative terms). The original iPods held their price longer since beefed-up models were introduced at similar prices.

Investors could have shrugged off 15% after 8 months (~$100 discount into the slow part of next year). It is safe to assume everyone expected 599 to stick through the holidays.

I just re-read the estimates, according to MacWorld.com the sales figures were 10 million *this* year, not the first 12-months. The big question will be the estimates given during their next quarterly call.


RE: Wow
By Zandros on 9/10/2007 2:13:18 PM , Rating: 2
How about a relevant comparison? Phones drop in price fast.

Anyway, Steve did say 1% marketshare of 1 billion phones sold per year (2006 figures). This amounts to 10 million units, and he said that was their goal for 2008. If they meant fiscal year or solar year, who knows.


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