Apple Inc.'s price cut of its iPhone and new lineup of iPod players are expected to ring in healthy holiday sales, but Wall Street investors accustomed to Apple's meaty profit margins appear a bit disappointed.
Apple stock dropped more than 5 percent after the price cut was announced Wednesday, closing at $136.76, down $7.40. In extended trading, the share price fell another $1.01.
Meanwhile, gadget enthusiasts who snapped up the ballyhooed iPhone before Wednesday are coping with a bitter aftertaste now that it is $200 cheaper within 10 weeks of its introduction.
The price cut, from $599 to $399 for the 8-gigabyte iPhone, immediately set off a debate on online tech forums between early adopters, who said paying a premium price came with the territory, and those who said they felt burned. The price reduction was too much too soon, some complained.
In a discussion on The Unofficial Apple Weblog site, the views were split evenly.
Many customers took the iPhone price cut in stride, however. Ryan Roth, who bought one for $599 on Friday after months of research, chalked up his purchase to "the worst timing ever."
"I realize this is not their problem: I agreed to the original price -- it's my fault," said Roth, 32, of New York, who has been thinking about getting a cell phone for four years but held out until the last week. "It just kinda sucks."
But some relief is in sight.
Apple spokeswoman Natalie Kerris said anyone who purchased an iPhone within the past 14 days and has the receipt can get a full refund under Apple's return policy if they haven't opened the product. If they have opened it, they still can get a refund of the price difference.
The steep price cut less than three months after the iPhone's launch on June 29 -- and the discontinuation of the 4-gigabyte iPhone, which sold for $499 -- were surprising from Apple, which usually keeps prices steady while adding new features. It normally discounts products only when they age.
Analysts said quick discounts are typical for the cell phone industry, however. The world's best-selling cell phone, Motorola Razr, for instance, debuted at $499 but can now be bought for less than $100.
"This is about Apple learning how to become a cell phone retailer," said Jeff Kagan, an independent telecommunications industry analyst based in Atlanta. "All of a sudden it's in the cell phone business, and everyone is trying to figure out how to measure it, and we don't know yet."
Apple Chief Executive Steve Jobs said the company is on pace to sell 1 million iPhones in the United States by the end of September. Watch Jobs demo the new iPods »
The newest iPod media players, also announced Wednesday, include a model called iPod Touch that incorporates the iPhone's touch-screen and adds the ability to wirelessly download songs directly from the new iTunes Wi-Fi Store.
Also new are a version of the best-selling iPod, the Nano, that plays video and a larger capacity, 160-gigabyte version of the video iPod, newly dubbed the iPod Classic. See the new iPods »
Apple also announced a partnership with Starbucks: Starting in October, the coffee chain's icon will light up on the Touch whenever a user nears a shop that has Wi-Fi access. Users can then download the song that's playing in that Starbucks shop or get a list of the 10 most recent songs played.
Apple executives said the revamped and expanded iPod line -- in which the iPhone is recast as the top model -- is the company's most robust lineup ever for the holiday season.
In 2006, Apple sold a record 21 million iPod players during the holiday quarter, about 50 percent more than in the same period the year before.
Apple has now sold more than 110 million iPods since they debuted in 2001.