Apple eyes higher sales, Europe with iPhone price cut

By Sinead Carew - Analysis

NEW YORK (Reuters) - Apple Inc's steep price cut on the iPhone, just two months after launch, is a sacrifice that may pay dividends if it boosts holiday sales and paves the way for a successful European debut.

Chief Executive Steve Jobs announced on Wednesday a surprisingly steep $200 price cut for the 8-gigabyte iPhone, which had made a high-profile U.S. debut at the end of June at $599. Jobs also said Apple would scrap the 4-gigabyte model, which had cost $499.

Analysts said Apple dropped the iPhone's price to make room for a more advanced model of the touch-screen phone in Europe, which is expected to launch with third-generation (3G) high-speed Web links. The current model only supports 2G speeds.

"By reducing the pricing on the 2G version, it does provide them with the flexibility in the next few months to introduce a 3G model," said Oppenheimer analyst Lawrence Harris.

Jobs said he expects the iPhone to launch in Europe in the next quarter but gave no more details.

News of the price cut pushed Apple shares down 5.13 percent as investors interpreted the size and timing of the move as signs that demand for the gadget may not have lived up to the hype.

"I think it's clearly a sign that the velocity of the sales volume has probably dropped to a level they're not comfortable with," said Gartner analyst Van Baker.

"We expected a price drop but I can't say we expected this aggressive a price drop. It's the equivalent of Apple going all in on a poker game," he said, adding that Apple investors were likely worried about the effect on iPhone profit margins.