Apple Inc. CEO Steve Jobs last week cut the price of the iPhone by $200 and unveiled iPod media players with touch screens and video games in a bid to entice holiday shoppers.
Apple shares fell as much as 5.6 percent after Jobs said the company will charge $399 for the top version of the phone, down from $599. Apple plans to phase out a $499 model that had less storage capacity. The iPhone debuted June 29.
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The price reduction raised concern that sales of the handset, a combination iPod and mobile phone, may have slowed. Jobs’ goal is to sell 730,000 this quarter, for a total of 1 million, taking customers from Research In Motion Ltd. and Motorola Inc. Jobs said Wednesday that he still expects to meet that target.
“The bad news is that it’s going to affect profitability, so it’s a perceived negative,” said Gene Munster, an analyst at Piper Jaffray Cos. in Minneapolis. “But when the iPhone numbers start to go vertical in the first few quarters, investors will be happy.”
Before Wednesday, shares of the Cupertino, Calif.-based company had increased 70 percent this year in Nasdaq Stock Market trading.
Jobs, speaking at an event in San Francisco, said the price cut was meant to spur holiday sales. The calendar fourth quarter and the back-to-school season are Apple’s two busiest periods.
“We want to put the iPhone in a lot of stockings this holiday season,” he said.
The company chose to phase out the lower-end, 4-gigabyte version of the iPhone, because customers have shown they prefer the 8-gigabyte model, said Jobs, 52. Apple expects to introduce the iPhone in Europe later this year.
Apple unveiled updated versions of Apple’s iPod Shuffle and added a smaller iPod Nano. The new Nano, available in five colors, will play games such as a Sudoko program developed by Electronic Arts Inc.
In a bid to build on the iPhone’s debut, Apple released an iPod with the same touch-screen technology. The new iPod Touch has the iPhone’s 3.5-inch display, built into a thinner package, and can connect to a Wi-Fi network. Like the iPhone, it can play videos from Google Inc.’s YouTube service.
Some analysts had expected Apple to announce a deal Wednesday to offer songs on iTunes from the Beatles. Wednesday’s event was called “The Beat Goes On,” which were the final words used in the Beatles’ last press release in 1970.
The new iPods “will do a good job of keeping the brand fresh,” Stephen Coleman, chief investment officer at St. Louis- based Daedalus Capital, said in an interview. Daedalus Capital, which began buying Apple stock in February 2004, now owns about $4 million of the shares.
Jobs typically releases new iPods to spur orders in the last three months of the year. The iPod, along with sales of songs and videos through the company’s iTunes store, accounted for more than a third of revenue last quarter. Aside from the iPhone, Apple hadn’t updated the iPod in almost a year.
Apple’s introduction of the $79, clip-on iPod Shuffle in October helped drive iPod shipments to a record 21.1 million units during the 2006 holiday season.
“This is an incredible iPod lineup for the holiday season,” said Jobs, who wore his trademark black turtleneck and jeans.
Apple said it would update its iTunes software. Customers will now be able to buy ring tones for 99 cents and add them to their iPhones. Computer users have downloaded more than 600 million copies of iTunes, Jobs said.
A new Wi-Fi version of iTunes will let iPod users shop for songs without being connected to a computer. Apple announced a partnership with Starbucks Corp. that will let iPod users purchase songs they hear at the coffee chain’s stores.
The company also updated its video player, renaming the device iPod Classic. It will cost $249 or $349, depending on the amount of storage. Nano prices start at $149.
Apple has sold more than 110 million iPods since their debut in 2001. It’s the best-selling digital media player in the United States, with about a 70 percent share of the market, according to the NPD Group Inc. in Port Washington, N.Y. ITunes is the most popular site for legal music downloads, NPD said. •
