Apple Slashes iPhone Price

NEW YORK -(Dow Jones)- Apple surprisingly cut the price of its iPhone on Wednesday, slashing the price of the 8-gigabyte model to $399 from $599 barely two months of the much ballyhooed device's launch.

Apple also said it would phase out the iPhone's 4-gigabyte model. The price cut - an indication sales of the product may not be keeping up with expectations - came as Apple unveiled a revamped iPod lineup that included a new touch-screen device that can connect via Wi-Fi networks to the Internet. Apple shares fell 4% to $138.42 following news of the price cut.

"I think it's a sign that the iPhone isn't selling as fast as they hoped for, so they decided to get aggressive on price," said Van Baker, an analyst at Gartner.

Apple's iPod Touch, which uses the iPhone's touch-screen capability, was centerpiece of the company's new iPod family. The iPod risked falling under the shadow of the iPhone - Apple's combination cellphone/iPod that has captured the industry's attention for most of the year. When the iPhone was released exclusively with AT&T, Apple Chief Executive Steve Jobs said the device was "the best iPod ever." As such, investors were looking for a standalone iPod with comparable capabilities.

Jobs answered that call with the iPod Touch, which shares the iPhone's touch-screen technology but lacks any cellphone capabilities.

"It's incredibly impressive in terms of both technical innovation and what consumers are looking for," said Avi Greengart, an analyst for market research firm Current Analysis. "It's basically an iPhone for people with Verizon."

The device will sell for $299 for the 8-gigabyte version and $399 for a 16-gigabyte version. It also features the ability to connect to Wi-Fi Internet hotspots and a full Internet browser.

"It appears to be everything but the cellphone," Greengart said. "Its a renaissance of the PDA."

To complement the new device, Apple unveiled an iTunes Wi-Fi music store. Customers can preview and purchase the song over the Web using a Wi-Fi connection to their iPod Touch. "Finally, some of you are saying," Jobs said at a company presentation in San Francisco.

The only potential bump in the road is the high price. Rival makers can point to media devices that are cheaper and offer more storage space. Greengart said Apple is positioning it as a premium product and will be able to justify the price. The company also has a family of products to address different customer segments.

Jobs unveiled a new version of the Nano, which Jobs said was the most popular music player in history. The new Nano is wider to accommodate a 2-inch video screen and metal design. A 4-gigabyte Nano is $149, while the 8-gigabyte version is $199.

The video iPod has been renamed iPod Classic and will come with double the memory. The low-end Shuffle product, meanwhile, will come with additional colors.

The latest batch of iPods met the usual fanfare and buzz surrounding an Apple product, and to the expected "oohs" and "ahhs" from the Apple faithful.

Apple also unveiled tweaks to its popular iTunes digital music store. Customers pay 99 cents for a song from iTunes, and will be able to create a custom 30-second ringtone clip for their iPhone for an additional 99 cents. The feature will launch next week.

Apple's iTunes features 6 million songs. The service is the nation's No. 3 music retailer behind Wal-Mart Stores and Best Buy.

The iPod update is the first major one in about two years and comes about two months after Apple introduced a newer lineup of iMacs, the desktop computers that occupy another important part of Apple's product lineup.

Analysts contend that Apple is also set to update its Apple TV digital media center next.

Earlier Wednesday, Microsoft cut the price of its own digital music player, the Zune, by $50 to $199. The rival device has been received tepidly, and has failed to dent the iPod's market position.

-By Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com

-By Ben Charny, Dow Jones Newswires; 415-765-8230; ben.charny@dowjones.com

(END) Dow Jones Newswires

Posted to the site on 5th September 2007