Volume sales are key to new Apple iPhone strategy

By Scott Hillis-Analysis

SAN FRANCISCO (Reuters) - Apple Inc will make less money off each new iPhone, but Wall Street expects only a minor impact on the company's bottom line as the cheaper price spurs mass-market buying.

When Apple Chief Executive Steve Jobs unveiled the iPhone 3G on Monday, he slashed the price to $199, just half that of the original model, in a move made possible by carrier subsidies worth hundreds of dollars per phone.

Apple previously received a slice of monthly subscription revenues collected by carrier partners such as AT&T Inc, an unusual arrangement that analysts said kept handset prices high and dampened consumer interest.

The big questions are how much the new iPhone, with its faster cellular connection and satellite location feature, costs to make, and how much carriers will pay Apple to hit that $199 price point.

Toni Sacconaghi, an analyst with Sanford Bernstein, estimated Apple's profit would be between $250 and $450 per phone, compared to about $500 for the previous model after adding in two years of monthly service payments.

As with any product moved from the high end to mass market, Apple hopes to make up the difference with volume.

Apple hopes that consumer gadgets like the iPhone and its popular iPod media players will help convert people into buyers of its highly lucrative Macintosh computers, which have been gaining market share in recent years.

Demand for the cheaper iPhone 3G is expected to be "highly elastic" -- economic speak for the ability of price cuts to drive sales significantly higher.