Apple did what?

The decision to cut the price of its most expensive iPhone to $399 from $599 - and phase out an entry-level iPhone that had sold for $499 - was clearly a shocker. Barron's tech writer Eric Savitz, who was in SF for Apple's product announcement, said "this was a move that no one in the room expected; people were truly stunned; and I mean jaw-dropping, mouths agape, stopped in their tracks stunned. The news almost erased all the good feeling in the room from the day’s various product announcements, and replaced it with a sense of shock. You’d think a dementor had flown into the room." Why all the fuss? Well, how would you feel if you had spent hours, even days, waiting in line for a $599 iPhone just two months ago - and now find that it's being priced at $399?

I wonder if a small army of angry customers are going to march into their local Apple store and return their phones, or at least demand to be get $200 back. In essence, Apple is now saying you have a choice: for $299, you get an iPhone, with no phone (i.e., the 8 GB iPod Touch); for $399, you can have the phone, or you can have the iTouch with more memory. The old worry was that the iPhone would cannibalize iPod sales; was the price cut out of fear that sales of the iPod Touch would eat into iPhone sales?

It also raises questions about how well the iPhones have been selling (up to now most analysts had been bullish). Of course it will increase sales, especially for the holiday season, but at what cost to the bottom line? Oh, Apple shares fell more than 5 percent today.