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September 6, 2007
To All iPhone Customers: Whoops!
Entertaining note from Steve Jobs to iPhone buyers on the price cut issue. Two issues: First, he had to do it; and second, in reading many AAPL analyst reports this morning, most (but not all) were more sanguine about the subject than yesterday's stock price decline would suggest.Wh? Because the lower price will open up the market, and the elasticity of iPhone demand is high. What's more, recall that most analysts were more nervous about overly high iPhone prices when it was launched in June.
That said, consumers are clearly (and rightly) pissed. It's one thing to be an early adopter and watch later buyers get lower prices and more features, but it's bringing the early adoption penalty to new heights to nail people with materially lower prices within two months. With that in mind, the Apple $100 rebate announced today is a good thing, and the right thing to do.
To return to the point, however, I still think Apple made the right move in cutting prices, and anyone who says it had entirely to do with tepid iPhone interest needs to get out from their bear-logoed tinfoil. Bringing a rebate into the mix squares the pricing circle correctly.
The preceding said, I'm more nervous about Apple because of the rebate than I am because of the price cut. The rebate, while perfectly appropriate in the context, makes the pricing decision seem rash and ill-considered. Apple had to know cutting prices by 33% within two months of launch would annoy recent buyers, and that it would lead to all the caterwauling that had Apple CEO Jobs claimed to have received and read "hundreds" of emails. I bought the price cut more as a practical and planned market matter before the rebate than I now do afterward.
Mind you, I'm not buying either that Jobs read "all" the emails he has received on the subject. My friend Herb claimed earlier today by IM that Steve only reads his blog. Dreamer.
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basic economics says you cut prices to increase Demand. The analysts have rightly called this a debacle and its clearly one of the worst mispricings of any major product in recent history. If this was msft you would be crucifying them. btw, it is becoming rather expensive to worship at the church of Apple these days.
Hey Dutch
Which analysts are calling this a debacle? I have read a few reports, and have yet to hear that descriptor.
While I wouldn't call me an Apple worshipper, in what sense is it expensive? Here are the numbers on the stock:
5-days: +1%
3-month: +9%
6-month: 53%
YTD: 59%
1-year: 93%
Granted, the iPhone price drop was poorly handled, but other than the last two days, I'm struggling to find the "expensive" part about being in AAPL stock over the last while.
Oh, forgot the Microsoft part. Cutting prices early on a hot product is a super-aggressive competitive strategy, and the current brouhaha over rebates will be forgotten within a month.
I'd chide Microsoft for doing a price cut precipitously the same I have chided Apple, but Microsoft's eve-of-iPod price cut on Zune is much more condemnation-worthy.
Paul check Bloomberg and also Marketwatch should have a new DJ Newswire about new reality of Apple pricing. this from Bloomberg:
"The 33 percent price reduction shows Apple is having trouble convincing customers to switch to the iPhone, said Global Equities Research analyst Trip Chowdhry.
The store credits will cost Apple about $60 million in revenue, based on about 600,000 iPhone owners, he said. That would subtract about 2 cents from profit, he said.
``Apple's iPhone is suffering from significant strategic and tactical missteps,'' said the analyst, lowering his rating on the computer maker's stock to ``equal weight.''
``It remains to be seen if the store credit will heal all wounds,'' said Toni Sacconaghi, an analyst with Sanford C. Bernstein & Co. in New York. ``It certainly acknowledges that the decision to lower the price so quickly had a significant negative impact on sentiment among its customers.''
"A price cut of this magnitude just two months after [the iPhone's] launch clearly raises some questions about demand," said Thomas Weisel analyst Kevin Hunt, who holds a market weight rating on Apple's stock.
"The iPhone price cut arrived roughly four months earlier than we expected," said Chris Whitmore, of Deutsche Bank.
dj:
"But now analysts that follow the Cupertino, Calif., company believe it is, to some degree, facing up to a new reality: Its infamous premium might be a bigger hindrance after all, especially as it enters new areas of business like cellphones. The latest signs of this came Wednesday when Apple lopped $200 off the price of its 8-gigabyte iPhone, the more popular of the two combination cellphone/music players it introduced about two months ago. It was the quickest the company has ever lowered the price of one of its products in its history. "
Please Paul. That's the first price cut of the Zune since it came out a long time ago and is simply presaging a new line of Zunes to be announced prior to holidays. Apple actually cut prices on this new line of Ipods although it doesn't appear as such because they are "new". The problem here is that Apple is losing its wow factor with the IPOD (saturation) and Zune will be formidable as msft is in it for long haul and will grind away at that business. I would not be long Apple stock at this point in time.
I am not talking about their shareholders, although I believe the one way ride is coming to an end. I mean their customers cum fan boys that actually APPLAUD the commercials. It is becoming rather expensive to be an apple customer, when you look at the premium you pay for the status of that little Apple thingy. I have read that brandishing your Iphone could get you laid, however. ;-)
Ah, I get you. Fair enough. I was just talking about Apple as an investment, and shareholders are mostly just happy the company has so many price-insensitive fanboys :-)
Btw, so long as we're playing dueling analyst quotes on the iPhone price cut, here's Andrew Neff of Bear Stearns:
"In conjunction with the product release. AAPL also lowered iPhone price for 8 GB iPhone from $599 to $399, essentially $100 above the pricing of 8 GB iPod Touch. While there was investor concern about the price cut so soon after the June launch of the iPhone, we think investors should recall that the high price of the iPhone was an initial source of concern -- moreover, we believe the pricing is going to spur volume."
sounds like a bunch of whining to me - the Series 3 Tivo was $799 when it came out. 2 months later it was $599. I somehow managed to survive
Get over it
Isn't one of the things we're not talking about here is that the rebate wasn't just straight cash/refund - it was $100 at the Apple store? I'm guessing a decent percentage of those customers are now working out whether they can afford to put a little extra money towards something that costs more than $100, so the 2 cent reduction in profit will probably come in at an actual much lower than this.
" I'm guessing a decent percentage of those customers are now working out whether they can afford to put a little extra money towards something that costs more than $100, so the 2 cent reduction in profit will probably come in at an actual much lower than this."
Depends on whether they buy something that Apple made or a third party product.
I wonder what % of this rebate will come back to AAPL in the form of iTunes revenue? Steve is no dummy.