Apple iPhone: 60 days old, 33% off

Price-slash move takes analysts by surprise, angers (some) current owners

Analysts disagreed Wednesday on whether the $200 price cut CEO Steve Jobs announced for the two-month-old iPhone meant that Apple Inc. is having trouble selling the device. But most current owners of the smart phone didn't have a problem coming to their conclusions.

In a move that stunned many of the people who waited in long lines to buy the first iPhones, Jobs slashed the price of the 8GB version by 33%. The iPhone now sells for $399.

"They were not having any trouble selling iPhones," said Ezra Gottheil, an analyst at Technology Business Research Inc. "My strongest guess is that all this was, in fact, laid out long ago. I don't see how AT&T would have agreed to that large price differential [between the iPhone and competing handsets] without something like this planned."

Jobs, naturally, took the no-problem-selling-iPhones line during an 85-minute stage show at San Francisco's Moscone Center. "We're on track to sell our millionth iPhone before the end of this month," he said, the target he and other Apple executives had set in late July during the company's third-quarter results conference call. Those same projections pegged 10 million as the mark Apple is hoping to reach by the end of 2008.

Other analysts, however, were skeptical about the drop, particularly its timing. "We certainly expected a price cut -- that's a normal pattern -- but $200...that was quite a surprise," said Charles Smulders of Gartner Inc. from the Moscone Center. "It's very difficult to know why Apple cut the price now. But we can say that Apple is being very aggressive in meeting its [sales] goals. And this makes it a lot easier for them."

Van Baker, another Gartner analyst who attended the event, was more sure of Apple's decision-making process. "My suspicion is that although they thought they were going to hit a million, sales were not as good as they wanted," said Baker. "[The price cut] also allows them to enter Europe at a much more competitive price and makes [rival handsets] like the Nokia N95 look much less competitive."

Apple has said little about its European iPhone strategy other than to slate the rollout for later this year.

Today, Jobs explained the price cut this way: "We want to make the iPhone even more affordable for even more people this holiday season. So we're going to do something about that today. We're not going to sell it for $599 anymore."

And that raised the hackles -- and the ire -- of some of Jobs' biggest fans: the early adopters who had jumped on the bandwagon in late June and early July.

Apple's own iPhone support forums were flooded with angry customers who started threads with titles such as "Demand Reparations!", "Time for an iWAR against Apple", and "Who here feels S * * * on?" There were also claims on the forums that Apple had deleted multiple anti-price-cut threads, including one which had been viewed by more than 2,200 people in a few hours.

On other iPhone forums, complaints also accounted for the bulk of new messages after Jobs' announcement. On a thread at everythingiPhone.com, Nicolas Young put it bluntly: "If Apple can afford to drop the price 33% within the first few months of the product release, it means that they gouged the consumer."

The analysts saw a bigger picture, or at least one that showed Apple's profits. "Although this is going to have an impact on [Apple's] margin," said Baker, the iPhone price cut combined with the top-to-bottom revamp of the iPod line means the company "will have very strong revenues over the holidays."

Gottheil agreed. "This is a way of driving up share and revenues at the cost of some of that [profit] margin," he said. "But that profit margin will still be very healthy."

That, of course, didn't do much to mollify customers who paid $599 for their iPhones. "I feel like I participated in a beta test of the iPhone...and I paid to do it," said "knelly" on the Apple iPhone forum.

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