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Mixed feelings over Apple's iPhone price cuts

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Stores,
Sale,
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Tom Krazit CNET News

Published: 06 Sep 2007 10:00 BST

Apple's decision to slash the price of the iPhone was heartening, confusing and troubling to the company's many followers.

Apple's chief executive, Steve Jobs, announced on Wednesday at San Francisco's Moscone Center that the 8GB iPhone now costs $399 (£197), a $200 discount off the initial launch price for Apple's first mobile phone, released just 10 weeks ago.

The news of a 33 percent drop in the iPhone's price was sandwiched between the unveiling of the new iPod Touch and a performance by singer KT Tunstall, almost a throwaway piece of the keynote speech on a day that saw Apple unveil new iPods in every category it occupies.

"We want to get even more aggressive than this," Jobs said, as he displayed the wide range of iPods that will be available this Christmas.

The iPhone price cut certainly was aggressive, and could perhaps convince some who were sitting on the sidelines to jump on board with Apple. However, it does raise the question of whether Apple needed to stimulate demand for perhaps the most hyped gadget in history by reducing the price so drastically so soon after its release.

Yet iPhone demand does seem relatively strong. On Wednesday, Jobs renewed Apple's pledge that it will have sold one million iPhones by the time the current fiscal quarter ends later this month, and also noted that the customer satisfaction reports Apple has seen rated the iPhone higher than any product Apple has ever shipped.

And the iPhone was the best-selling handset among smartphones and feature phones sold to US consumers in July, the first full month it was on sale, according to iSuppli.

But iSuppli estimated that only 220,000 iPhones were sold during the entire month of July. Apple reported selling 270,000 iPhones in just the first 30 hours the device was on sale in June.

Of course, there's always going to be an initial drop-off in sales of a product with as much prelaunch buzz as the iPhone, but a price cut that steep coming so soon after the first iPhone hit the streets is making some analysts raise their eyebrows.

Apple did not immediately respond to a request for comment on why the company chose to make the pricing move, but Jobs put a Christmas spin on the price cut.

"We want to make iPhone even more affordable for even more people this holiday season... We want to put iPhones in a lot of stockings this holiday season," Jobs said.

Roger Kay, president of Endpoint Technologies Associates, wasn't so sure Apple's primary goal was to make the Christmas shopping experience a little lighter on the wallet.

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"It is a very interesting sign. My first suspicion is that they aren't getting the volume," Kay said.

One source of confusion surrounding the iPhone and its sales could lie in how the numbers are calculated. Apple can count iPhones shipped to AT&T stores as sales, even before they have made their way into consumers' hands. Estimates vary depending on what point in the process the tally is made.

Earlier this summer, AT&T revealed that it activated far fewer iPhones than were sold by Apple, and one of the reasons given for that gap was that a large number of iPhones may have been in transit as the quarter closed on the night of 30 June.

iSuppli obtained its estimates by surveying two million US customers and asking them whether they bought an iPhone. The market research firm actually thinks Apple is going to sell 4.5 million iPhones this year, a far greater figure than other estimates indicate.

Piper Jaffray's Gene Munster issued a research note on Tuesday, before the news of the price cut, estimating that Apple is on track to sell about 800,000 iPhones during the quarter. Piper Jaffray reached its estimates by counting sales in Apple stores around the country and cross-referencing its data with data from PJC Wireless, which watched iPhone sales at AT&T stores.

After the news of the price cut, Munster said Apple is trying to accelerate demand among mainstream consumers…