Contact Me

Books

« Enron: It Was the Other Jeff Skilling | Main | "A Rate Cut Won't Work" »

Latest Stories

September 7, 2007

Apple: More Troubles Today

Okay, this whole Apple iPhone price-cut issue continues to spiral. The stock is now off 9% since the news, and it's falling more today as analysts incorporate the earnings impact of the $100 in-store credit into their models. It's not often a fast-growing company with a hot product cuts prices by 33% and then takes heat for the decision, so let's talk some more about it.

Three things.
  1. As I said yesterday, in a perhaps perverse way the $100 Apple in-store credit troubles me more than the initial price cut. I could handle the latter -- Steve's playing for keeps, and he wants to make a statement in the cellphone market. He's prepared to compete on both price and features, which makes him a formidable competitor in that cut-throat business. Fair enough. But the credit's belated arrival suggested the iPhone price cut was ill-considered  and somewhat rash, not part of the original plan. That could mean any number of things, some operational, some political, and some financial, but none of them are appealing to investors and analysts.
  2. Most analysts are coming to the conclusion (as Eric summarizes here) that the earnings impact of the price cut is minimal to non-existent. Not zero, but not a large enough drop to justify the current tumble in AAPL shares.
  3. Further, in the longer run, this is not (yet) about a problem with Apple's iPhone business. Instead, it is largely a public relations fiasco, with a tone-deaf Apple cutting prices without adequate consideration of the political impact on its existing iPhone customer base. That is not the same thing, folks, as the loopy implicit suggestion that Apple should have kept prices high (a point that Tyler Cowan nails here).
My guess is you'll see a coterie of analysts come out defending the stock shortly on the current weakness. The stock, while off 9% in the last few days, is still up 11% over the last month, so this is going to look to many like a buying opportunity.

For my part I'm still a little unsettled by the rebate, and while I like Apple at these prices, I sure would like to know more about when Jobs decided to cut iPhone prices. I think Jobs needs to get more out in front of this issue and take questions somewhere, not just issue a press release.

Sphere It   |  Digg this! Digg it   |  Bookmark this! Bookmark it   |  Stumble It! Stumble it   |  Facebook this! Facebook it

Comments

1. Comment by ed -- September 7, 2007 @ 9:57 AM

A store credit is just another cynical gesture by apple to lure customers back in its stores. It is a good example of the corrupt culture at apple.

2. Comment by Patrick -- September 7, 2007 @ 11:21 AM

I think this is a monumental business blunder that will go down in history next to New Coke. Jobs and crew are clearly stunned at the reaction. They do not comprehend that they are no longer dealing with adoring Apple junkies who will let themselves get screwed and then come back for more.

As a result, they will have a hell of a time getting people to pay a premium price the next time they introduce a cool new product. Like now, for instance. All the iPhone price news is drowning out any buzz about their new iPods. All those new Apple customers that Jobs thinks will switch from PC to Mac? They'll think twice now, too.

AAPL shares are where they are because of the perception that Steve Jobs has the golden touch and can do no wrong. That perception just took a huge hit.

3. Comment by Joe McMackin -- September 7, 2007 @ 11:29 AM

Do you think the rumors of the new cheap Google Phone have anything to do with these price cuts?

4. Comment by Ajay -- September 7, 2007 @ 2:26 PM

Now that Infectious Greed has become all Apple all the time- what an apt pairing, btw- have you changed your mind on shorting AAPL, Paul? You seemed fairly dismissive of them a year or two ago, claiming that all the iPod hype would disappear within a couple of years. However, despite all the recent Apple posts, you have not stated that you now believe in their long-term outlook. As for me, I think you were right the first time and now that AAPL is inflated so much, they're in for a huge fall. Jobs is doomed to create markets (Apple II, iPod/iTunes) because he can bring disparate components together to seed a market but cannot profit from this new market for long because of his obstinate need for secrecy and control and inability to specialize. Without a big change in the way the company operates, they're doomed to getting beat at their own game again (or worse, the market they're in will become completely irrelevant).

5. Comment by DW -- September 7, 2007 @ 3:09 PM

Patrick has it right about this being a colossal error in business management. In one swipe Jobs has sacrificed a great amount of customer goodwill, diluted the iPhone brand and raised doubts about the company's ability to manage its expanding product line. It's possible this blunder will be just a blip in the company's history. Even so, it was a completely avoidable mistake.

6. Comment by Dennis Howlett -- September 9, 2007 @ 12:31 AM

68 days later? You can't convince me that this move wasn't in the works for a while. The net-net impact on profit is almost zero: agreed. The PR impact is much worse. The reality can only be measured by the number of folk who buy the iPod touch. A visit to any Apple store will tell you all you need to know about footfall and impact.