iTolduso

A hearty laugh!


I'm still waiting for the inevitable price cut after v3.

UPDATE: IPhone Price Cut Tests 'The Apple Premium'

September 06, 2007: 07:15 PM EST

(Adds additional context and comments in the 10th and 11th paragraphs. Adds Apple's refund plan for early adopters and updates stock price.)

By Ben Charny

Of DOW JONES NEWSWIRES

SAN FRANCISCO -(Dow Jones)- Apple Inc. (AAPL) Chief Executive Steve Jobs was asked about a month ago to explain why the company sells computers and music players that, in general, are more expensive than rival gear from other manufacturers.

Jobs' answer was emphatic: "We refuse to sell crap," he said during the public appearance. If Apple's higher standards drive up prices, so be it, he said at the time, because despite the price tag there's been demand for Apple goods.

But now analysts and investors that follow the Cupertino, Calif., company believe it is, to some degree, facing up to a new reality: Its infamous premium might be a bigger hindrance after all, especially as it enters new areas of business like cellphones.

The latest signs of this came Wednesday when Apple lopped $200 off the price of its 8-gigabyte iPhone, the more popular of the two combination cellphone/ music players it introduced about two months ago. It was the quickest the company has ever lowered the price of one of its products in its history.

Once priced at $600, the iPhone now costs $400, which while still a premium over other devices, is much closer to the cost of rival products from other manufacturers.

Jobs told the hundreds that attended his public appearance in San Francisco to introduce a new lineup of iPods, and in subsequent interviews with journalists, that the iPhone price cut signified Apple as "aggressive" in time for the holiday gift-buying season.

But by adding that the cut will make the phone more appealing to the masses, Jobs could be hinting at how when it comes to cellphones - arguably the best- selling of the world's high-tech products - the premium may have to be sacrificed.

That's because, in part, unlike someone shopping for a computer, cellphone consumers are used to a world in which their phones are so heavily discounted and subsidized, that they often end up costing just a fraction of their original price, or are given away for free by carriers.

So a $600 phone, regardless of whether it's packed with quality features made by Apple, provokes "a lot of sticker shock," said Shaw Wu, an analyst with American Technology Research. "That's what you'd pay for some computers."

By introducing the iPhone at $600, Apple was testing whether the "Apple premium" could succeed in another area of electronics, said Todd Dagres, co- founder of Spark Capital, which invests in media-focused technology companies. What it discovered was a limit to the cachet of its well-known brand.

"There are people willing to buy and pay the premium for anything with 'Apple' on it," Dagres said. "But as it ventures further away from making computers, the less Apple's brand means, and, as a result, the less people are willing to pay a premium."

On Thursday, Jobs apologized to customers dissatisfied over Apple cutting the price of its high-end iPhone and offered early buyers who paid full price a $100 store credit toward any Apple product.

An Apple representative didn't return two phone calls seeking comment for this story.

Gene Munster, an analyst with Piper Jaffray, told Dow Jones Newswires that the cut should accelerate the iPhone's appeal.

Moreover, Apple has in the past two months cut the prices on products in all three of its major categories, another indication that it's adjusting to the new reality, Dagres said.

Along with the iPhone price, the company also cut the prices of the iMac desktop computer lineup, which it said has subsequently helped goose sales and demand.

On Wednesday, Apple lopped $50 off two brands of its iPod music players.

Trip Chowdhry, an analyst with Global Equities Research, said the price cut to the iPods is particularly telling.

It was "a realization by Apple that the novelty effect" of its products, a major reason why it could get away with charging more, "is fading away."

Shares of Apple fell $1.75, or 1.3%, to $135.01 on above-average volume Thursday, after falling 5.1% on Wednesday. Shares traded at $135.37 in recent after-hours action.

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



(END) Dow Jones Newswires
09-06-07 1915ET
Copyright (c) 2007 Dow Jones & Company, Inc.