iPhone Price Drop Is A Bad Sign

Apple's (APPL) price cut on the iPhone means the phone is not selling the way they had hoped. I believe this can be attributed to slowing consumer discretionary spending, which will really hurt Apple.

The company does not usually cut prices this drastically - just look at its iPod line and you will see that not only were iPods hard to come by due to high demand when they first came out, but the prices were not lowered till at least a year after the release. This price cut on iPhone reiterates my concern about slowing consumer spending - either that or the phone sucks.

Bottom line - I recommend selling some AAPL if you have not done so already. I sold mine yesterday at the $145 level.

Full Disclosure: I do not own AAPL but my position change anytime without notice.

AAPL 1-yr chart:

Comments

[mike hough]

Your logic does not correspond with the facts. iPhone was already the best selling Smartphone outselling Blackberry and all other Smartphones in the first month sales (iSuppli survey). It is on target to beat Apple's sales estimates (Piper Jaffray survey conducted before the price reduction).

You cannot therefore claim "the phone is not selling the way they had hoped." Additionally you cannot claim "I believe this can be attributed to slowing consumer discretionary spending".

The does NOT mean that selling stock is a bad idea as the market often moves in an irrational way. But please do not make claims which fly in the face of reason. Give your claims some context as any responsible journalist should. Your readers deserve this.

Meanwhile I have sold some stock but, armed with the facts above, I am better prepared than I would be if I followed your article and concluded that Apple's iPhone was a failure. It clearly is not.

Your readers might also like to consider selling RIMM (Blackberry) and other Smartphone stocks which now have to compete with a much lower priced iPhone which was already outselling them all! They might also like to know that iPhone is already selling more than all Microsoft based phones combined even with your assumption that it is a 'failure'.

2007 Sep 06 04:43 AM

[peter02l]

In an interview with Wall Street Journal, Steve Jobs said he is very pleased with how the iPhone is selling. Are you suggesting that he is lying? Read the article. The price drop suggests nothing of the sort.

2007 Sep 06 04:51 AM

[Faisal Laljee]

I am not suggesting he is lying. but do you really think he will ever say that he is displeased?

2007 Sep 06 10:24 PM

[peter02l]

As a matter of fact, yes I do. But if her were not pleased, he would definately say he is.
Let's not put everone in the same boat as the Bush administration.

2007 Sep 07 01:27 AM

[preinitz]

Apple is clearing inventory to make room for the new model iphone.

2007 Sep 06 06:59 AM

[Tom B]

I think the goal of the price drop is to accelerate the demise of Nokia, Motorola, Palm, RIMM, Sprint, Verizon, NBC/Universal and etc. You get my drift.

2007 Sep 06 09:08 AM

[yesssss]

Somebody finally gets it. Millions of "hurry up and get it done" dollars invested by Apples competition negated in one fell stroke. No "recoup our investment" initial high price for them, they must sell at a loss to reclaim market share lost by the new kid in town.

2007 Sep 06 12:38 PM

[peter02l]

Yes. Well said. I don't know why certain companies just don't give up and try to improve their core products. The $50 Zune discount turned out to be quite meaningless with the announcment of the new iPods. If these phone manufacturers try to play hardball, Apple can easily expand into low cost, touch screen phones without Internet capability.

2007 Sep 07 01:36 AM

[carleast]

I think it's just a simple application of clever business practice following the introduction of new models. The new iPod touch is seriously undercutting the iPhone. It's basically the same thing except for the phone part. So people could get the iPod Touch and a cell phone for much less than the iPhone. So they reduce the price of the iPhone significantly to keep demand levels up. I also think sales of the iPhone probably aren't going as well as first thought.

Thomas's prediction of the downfall of Nokia is so ridiculous it made me laugh. It's like saying Mercedes are going to topple Toyota's as the world biggest carmakers.

2007 Sep 06 10:35 AM

[Tom B]

You always have a contrarian take on things, Carl. No, i don't expect Nokia to disappear next week. But consider: they are a "pure play" in phones; all they have to fall back on now is racing toward the low end.

2007 Sep 06 11:02 AM

[mollytjm]

If you think the price cut means sales will slow, think again. I'm on a budget and cheered out loud when i saw the new iphone price because i intend to buy one now...i'm sure my cheer wasn't the only one out here. thank you, Apple!

2007 Sep 06 10:39 AM

[Faisal Laljee]

I never said price cut means sales will slow. I said sales are slow, hence the price cut.

2007 Sep 06 10:25 PM

[artman1033]

You are full of baloney. BY lowering the price, the new company in the industry, will destroy the high end competition. The whole telecomunication industry will be in turmoil. Aapl computers, ipods and iphones are all leading technologies. The introduction of the iphone in Europe in October will further the revolution. Go to an aapl store. The stores are always busy. Some are busy 24 hours a day. The whole aapl company is REVOLUTIONARY. Every product they make is the best of breed. Watch the Apple demos at their site and the meeting in San Francisco yesterday. aapl stock will hit $200.00 by Thanksgiving.

2007 Sep 06 11:22 AM

[Faisal Laljee]

Consider this - Apple has never dropped prices this drastically on any recent product. Macs and iPod's have held their prices despite competition from other PC makers and Sandisk and Creative's MP3 players. So why would they drop prices on the iPhone less than 3 months into the launch if they were selling really well?

As far as the stock price, the stock was up almost 70% this year as of yesterday. I recommended taking a little profit. At no point did I say to dump the stock completely.

I predicted that Apple would hit $200 by the end of this year 9 months ago. However, with the lower price of iPhone, there is short term weakness in the stock. Moreover, the mortgage and credit crunch will hit consumers sooner or later and that will curb discretionary spending. Please read the following posts to see how right I have been with Apple before you pass judgement.

stocksandblogs.com/200...

stocksandblogs.com/200...

stocksandblogs.com/200...

stocksandblogs.com/200...

2007 Sep 06 10:42 PM

[peter02l]

The reasons for dropping prices for the holiday season have been pointed out in other comments above. To rephrase, many people will be buying presents or choose to indulge themselves over the next three months. Some will purchse phones. All sorts of companies have a lineup of new products and/or price drops lined up to entice shoppers to spend their holiday gift budget on their products. A person could consider a phone, an exercise machine, a new guitar, etc. Because this is the biggest shopping season in the year, everyone expects to get a good deal to boot. The iPhone is certainly a coveted gift. The price drop makes it a good deal. So you can see how someone who might have been thinking of getting a new XM radio satellite system or a fancy watch might want to buy an iPhone instead. Now all these new iPhone owners will not be buying a Nokia or Samsung phone in the next couple of years.
As for the stock price, if you were predicting $200 by January, you should stick to it. All these rebates and the price drop will have a relatively small effect in the next four months because iPhone revenue is realized over 24 months. Say Apple will sell 3 million phones by the end of the year (to be overly optimistic) it will miss out on less than $30 million of revenue over two quarters. Believe me it has made much more in extra MacBook sales during the back to school season. The reason Apple is realizing iPhone revenue over 2 years is so that it can better amortize the component costs over the life of the product and alleviate the unpleasant cycle of bust and boom that follows the introduction of a new product.

2007 Sep 07 03:03 AM

[Roberto]

What a simplistic reasoning. And to advise people to sell based on that flimsy "logic"... You must really be a full-time analyst.

Why the 1/3 price cut is quite obvious, as other have mentioned: it's because of the new iPod Touch. What Apple has done it to ensure that people would still have a strong reason for buying the iPhone -- for the same price, they have a choice: get an iPod without the phone bit but with more storage space, or get an iPod with less storage but which you can use as a phone.

And by the way, if I were Nokia, I'd be trembling now. In one move Apple has suddenly made it incredibly difficult for me to sell my new N Series at with the (presumably) high profit margins I had been previously. Apple just moved the goalpost for high-end cellular phones, and if you're just a company that relies on phone sales, it's not a very pretty scenario that greets you this morning.

2007 Sep 06 11:53 AM

[Faisal Laljee]

So are you saying that a decline in consumer spending will not affect sales of the most expensive phone AT&T has to offer?

Also, have you seen the slow internet connection, the lame text messaging and picture mail function on iPhone?

Don't forget that the Blackberry Curve will compete directly with the iPhone, and it has faster internet and push email technology, which high-end consumers demand.

2007 Sep 06 10:46 PM

[topchat]

Far from being in trouble I'd say that in part the drop in price is to allow for a price position for a 3G new model of iPhone for the European/Far East market. I can see a $499 3G model coming along that could look very attractive in Europe.

2007 Sep 06 12:12 PM

[Faisal Laljee]

I didn't say they are in trouble. Just that they are not selling as many as they expected - hence the price drop. Name another apple product in recent memory that got such a big price cut less than 3 months after launching.

2007 Sep 06 10:47 PM

[jgphoto1]

The iPhone has already established a clear and strong sales record. This move should be taken at face value as an aggressive move to not just sell well but to blow the doors off the smartphone space. The competition who have been scrambling to come up with the "iPhone killer" at the assumed $600 price point just got totally blindsided.

You may be rightly concerned about consumer spending but with the new iPhone price combined with the new iPod line, iMacs, Leapord and revised price points you can bet that Apple stores with be more packed than usual and sales volume with be stratospheric for the next few months.

2007 Sep 06 12:29 PM