Mixed feelings over Apple's iPhone price cuts
Published: 06 Sep 2007 10:00 BST
…who couldn’t afford a $599 (£295) iPhone, and who will now snap up the device in greater numbers.
"Before the price cut, we had expected the iPhone to be mainstream by the end of [Apple's 2009 fiscal year, which will end in September 2009]; we now anticipate a steeper adoption curve earlier. The bottom line: Apple is investing iPhone profit dollars over the next few quarters in order to be a legitimate player in the phone market," Munster wrote on Wednesday after Apple's announcements.
The price cut will come at a cost to Apple's overall profits. Piper Jaffray now estimates that Apple's gross margins could fall to 27 percent in a worst case scenario, four percentage points off their current estimate for this current fiscal year.
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That might have been what Apple investors were worried about as they bailed out of the stock on Wednesday following the announcement. Apple's stock started going down at around 10 am PDT in the classic "sell on the news" strategy, but fell precipitously after news of the iPhone price cut surfaced, to close down five percent. Still, the stock was worth more at the end of Wednesday than it was last Wednesday.
It could also come at a cost to Apple's reputation among its most dedicated fans, who were dismayed to learn they paid $200 more for their iPhones than someone who entered an Apple store today.
C'est la vie, said Stephen Baker of the NPD Group. "If you didn't think it was going to drop in price, you were dreaming," he said. Under Apple's returns policy, iPhone customers who made their purchases within the past 10 days can get $200 back, so long as they contact Apple within 14 business days of when their iPhone first shipped.
It's not at all clear from looking at the estimates of iPhone shipments whether the price cuts were needed to stimulate demand. Piper Jaffray's checks of Apple stores estimated that Apple sold several more iPhones per store in August during the height of the back-to-school selling season than it did in July.
But it's likely that the price cuts will stimulate demand, regardless of whether Apple was motivated by the need to jumpstart sales or the desire to reach out beyond its core group of early adopters.
CNET News.com's Michael Kanellos contributed to this report.
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