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The Apple iPhone, left, with the new Apple iPod Touch.
The Apple iPhone, left, with the new Apple iPod Touch. (Paul Sakuma/AP Photo)

Apple cuts price on top iPhone, angering some early buyers

Apple Inc. chief executive Steve Jobs disclosed a host of major upgrades to the popular line of iPod music players during a news conference in San Francisco yesterday. But then Jobs topped himself with an unexpected bombshell - a $200 price cut on the new iPhone cellphone.

Introduced in late June at a top price of $599, the iPhone was one of the most anticipated electronic devices of the decade. Despite its high price, consumers across the country stood in long lines to buy the iPhone on the first day of sales. Now, just two months later, Apple is discontinuing the less-expensive $499 model and cutting the price of the premium version from $599 to $399.

Both Apple and AT&T Inc., the cellular phone company that delivers service for the iPhone, denied that the price drop reflects sluggish sales of the phone. Apple said it's on track to sell a million iPhones before the end of September, just three months after the product was introduced. AT&T said the lower price would boost sales of a product that's already a hit. "We're very pleased with customer response to the iPhone so far," said AT&T spokesman Mark Siegel, "and we expect that this new pricing will make it even more popular."

Industry analysts at research firm iSuppli Corp. agree the iPhone is selling well. A report issued Tuesday by iSuppli, before yesterday's price cut, predicted Apple would ship 4.5 million iPhones by the year-end, including iPhones that Apple plans to begin selling in Europe during the fourth quarter.

Greg Sheppard, iSuppli's chief development officer, said it costs Apple about $300 to make each iPhone, giving the company a hefty 50 percent gross margin, at the $599 price. The margin may actually be growing, because electronics components generally get cheaper over time. Cutting the price by $200 still leaves enough room for a profit, said Sheppard, while making the iPhone more competitive against popular rivals like Research In Motion Ltd.'s BlackBerry smartphones.

The dramatic price cut has angered some consumers who paid the higher price. "I was happy to pay full price thinking that I'd at least get a couple months out of it before the price went down, say, $100," said Richard W. Joseph, 32, a doctor at the M.D. Anderson Cancer Center in Houston, and a member of EverythingiPhone .com, a website devoted to the phone. "Going down $200 17 days after I bought it is very upsetting."

But other iPhone owners took the price cut in stride. "The iPhone is great and is the best cellphone I have ever used to browse the Internet," said Tony Tsai, 36, an equity investor in San Jose, Calif. "Lowering the price will allow even more people to share this great experience."

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

Word of the price cut came after Jobs described a host of iPod upgrades.

First came new colors for the low-priced iPod Shuffle with a gigabyte of flash memory storage. Part of the $79 purchase price of any red Shuffle will be donated to a fund that seeks to halt the spread of AIDS in Africa.

Jobs also showed off a new version of the popular Nano flash memory player with a larger color screen capable of displaying movies and videos. The new Nano will be priced at $149 with 4 gigabytes of storage or $199 for 8 gigabytes.

The large hard-drive-based iPod will be renamed the iPod Classic, and will be available in a $249 80-gigabyte version and a 160-gigabyte model selling for $349.

The new iPod Touch, set to go on sale this month, replaces the familiar wheel-shaped controller with a touch screen like that used on the iPhone. It won't include a cellphone, but will allow for broadband Internet access using WiFi wireless networking.

Apple also revealed a deal with coffee retailer Starbucks Coffee Co. IPod Touch users will get free WiFi access to Apple's iTunes music store at Starbucks stores.

In addition, they'll see an icon on their screen, enabling them to instantly purchase and download the music playing in the store during their visit.

The iPod Touch will come in two models - an 8-gigabyte version priced at $299 and a 16-gigabyte version for $399.

Hiawatha Bray can be reached at bray@globe.com.

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