Apple Cuts iPhone Price, Updates iPods

By: Rachel Konrad, AP Technology Writer
By: Rachel Konrad, AP Technology Writer

Apple Inc. slashed the price of the iPhone by $200 Wednesday a rare move for the company that typically discounts only older products. It also updated its iPod media players, introducing a model with a touch-screen and other iPhone features.

The 8-gigabyte iPhone will be $399 $200 cheaper than the same model when it went on sale in June. The 4-gigabyte iPhone, which sold for $399, will be phased out. By comparison, the new touch-screen iPods will start at $299.

Analysts said the price drop would definitely boost sales, possibly allowing Apple to achieve its self-proclaimed goal of selling 1 million iPhones by the end of September.

But they also questioned the move, which is not consistent with Apple's standard marketing practice of lowering prices during a product's second or third update. Apple also typically keeps the price the same but adds new features and storage when a product is upgraded.

Apple stock dropped more than 5 percent after the price drop was announced, losing $7.40 to close at $136.76.

"It will absolutely help sales but at what cost?" asked Tim Beyers, an analyst at The Motley Fool research and investment group. "People who bought the iPhone weeks or months ago must really be annoyed, and with good reason they might think twice about being the first to buy future Apple products. This smacks a little of desperation, and it's very unlike Apple."

Also Wednesday, CEO Steve Jobs unveiled updated iPods, including the version with a touch-sensitive screen, wireless Internet access and a Web browser. Unlike an iPhone, it can't make or receive phone calls.

The iPod Touch allows users to download songs wirelessly, and, eventually, will let people sample and buy digital tunes from any Starbucks in the United States that offers Wi-Fi Internet access.

The iPod Touch is less than a third of an inch thick and can be used for storing photos, music, videos and other digital data. It features the same 3.5-inch, touch-screen display as the iPhone, on which light finger touches allow the user to scroll through menus, and two fingers are used to resize pictures.

The iPod Touch also has built-in wireless Internet access and the Safari Web browser. The iPhone, which runs on AT&T Inc.'s cellular network, also supports Wi-Fi.

An 8-gigabyte iPod Touch will cost $299. A 16-gigabyte version will cost $399. It will be shipped worldwide starting later this month.

People using the iTunes Wi-Fi store will be able to download songs for the same price as the regular store, which charges 99 cents per song.

Starting in October, the Starbucks icon will light up on the iPod Touch whenever a user nears a Starbucks coffee shop that has Wi-Fi access. Users can then download the song that's playing in the shop or get a list of the 10 most recent songs played.

The Starbucks partnership begins at 600 stores in New York and Seattle on Oct. 2. In November, it will be available at 350 stores in the San Francisco Bay Area, and by the end of next year it will be in all Starbucks with Wi-Fi nationwide.

Financial terms of the deal weren't disclosed.

Jobs, speaking at a media event in San Francisco, also showed off other iPod updates, including an iPod Nano with a 2-inch screen for watching movies and playing built-in games. The current version does not play videos.

"It's incredibly tiny. It's incredibly thin," Jobs said of the new Nano. "We think it's really, really beautiful."

The new Nano, which will be in stores starting this weekend, will come in a 4-gigabyte version for $149, and an 8-gigabyte version for $199.

Apple also announced it will be selling ring tones for the iPhone for 99 cents, plus the 99-cent cost of the song. Ring tones from more than 500,000 songs available on iTunes will go on sale next week.


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