Apple unveils new iPods, phone strategy

$200 iPhone price reduction indicates the company plans an aggressive tack

September 06, 2007|By New York Times News Service

SAN FRANCISCO -- Apple unexpectedly cut the price of its iPhone yesterday, claiming that it was seeking to broaden the market for the popular but pricey phone for the Christmas season.

The company also introduced a new digital music player modeled after its iPhone and struck a wireless music distribution deal with the Starbucks coffee chain.

Apple, which rarely drops prices on its products, cut the price of its 8-gigabyte iPhone by $200, to $399. Steve Jobs, chief executive of the Cupertino, Calif., electronics maker, said in an interview after the announcement that the company would have been able to hit its publicly declared target of a million iPhones sold in the United States by the end of this month, even without a price reduction.

"We're a high-volume manufacturer, and we're pretty good at getting costs down," Jobs said. "It's very clear we have a breakthrough product on our hands, but it's also clear that many can afford it, some can't. We'd like to make it affordable to even more folks going into this holiday season."

Investors appeared to interpret the announcement negatively. Apple's stock fell more than 5 percent, closing at $136.76, and most of the loss came during and after Jobs' presentation yesterday morning.

"My suspicion is that they got to 750,000 really quickly, and then it started to slow down," said Van Baker, an industry analyst at Gartner Group.

The iPhone was first sold June 29. A number of recent analyst reports have noted that the iPhone was selling well and was, indeed, outselling its smart-phone competitors. But Jobs said that if the company had waited past the Christmas buying season to reduce prices, it would have been forced to delay for another year a reach to a broader consumer market.

"We're feeling like being more aggressive," he said.

"They're trying to get the next demographic to bite into it," said Chetan Sharma, a telecommunications industry analyst in Issaquah, Wash.

Yesterday, Apple executives insisted that the price cut had been planned long ago.

They said that the strategy was conceived in part to keep the iPhone's pricing in line with its new iPod Touch, a music player that looks like the iPhone but lacks the phone-calling capability.

But the sharp price reduction suggested that even Apple, which has long lived in a pricing bubble insulated from other personal-computer makers, is not immune from the brutal pressures of the cellular phone business.

Recent buyers of the iPhone could get a break. Apple will refund the difference in price to those who purchased a new iPhone within the past 14 days.

Jobs said the company was making a "total refresh" of the iPod line, and he demonstrated a series of new features that showed how Apple was turning the music player into a hand-held computer.

Jobs displayed the new flagship iPod Touch, which will sell for $299 for an 8-gigabyte model and $399 for one with twice the capacity.

Slightly thinner than an iPhone, the new device has touch-screen controls and a built-in Wi-Fi antenna that allows it to connect directly to the Internet. It also has a browser, which makes it more of a hand-held computer than any other music player.

Users will be able to connect to a new iTunes Wi-Fi store from which they can download songs directly to their music players without having to connect to a computer.

Another feature of the iPod software will be the ability to alert a user entering a Starbucks coffee shop to the music being played there. If a person likes the song and wants to buy it on iTunes, tapping an icon on the screen will download the song.

Howard Schultz, Starbucks' chairman, said Starbucks stores in the United States were being equipped to manage this process. He said that stores in Seattle and New York City would have the capability by Oct. 2, and that other stores across the country would get the service over the next two years.

In other announcements, Apple introduced a new iPod Nano, squatter than before, but with a bigger screen for viewing video. The current version does not play videos.

Apple will begin selling the new Nanos this week. They come in a 4-gigabyte version at $149 and an 8-gigabyte version at $199.

The Associated Press contributed to this article.

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