Apple halves iPhone to $99 to galvanize sales

SAN FRANCISCO (Reuters) - Apple Inc halved the price of its entry-level iPhone to $99 on Monday in a move that could widen the trendy device’s mass-market appeal as competition for smartphones heats up.

Craig Federighi, vice president of Mac OS at Apple Inc, speaks during Apple Inc's Worldwide Developers Conference as Apple computers are flashed on a screen in San Francisco, California June 8, 2009. REUTERS/Robert Galbraith

The company also unveiled a new iPhone that takes videos and has voice features, matching offerings by rivals Palm and Research in Motion’s BlackBerry.

Analysts said sales could double for the lower-priced iPhone.

Chief Executive Steve Jobs, on medical leave since January, did not put in a much speculated-about appearance.

The next-generation iPhone 3GS -- the “S” stands for speed, double that of the original model -- goes on sale in the United States, Germany and other countries on June 19 for $199 to $299.

“They plugged the hole in the offering of the 3G iPhone,” Gartner analyst Van Baker said, referring to the new features.

A lively crowd convened at the event in downtown San Francisco, whooping and applauding throughout the conference as Apple executives unveiled everything from a much-cheaper Mac Air notebook to fresh operating system software.

Shares in Apple closed 0.6 percent down at $143.85 -- after a 6.5 percent climb in the week leading up to the highly anticipated event -- as Jobs failed to show and investors debated the merits of the sharp iPhone price cut.

Morgan Stanley estimates that an entry-level iPhone at what Apple marketing chief Phil Schiller calls a “breakthrough price of $99” could double existing sales. That is the 8-gigabyte model previously priced at $199.

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AT&T, the exclusive U.S. service provider for the iPhone, will sell the 16-gigabyte 3G for $149, down from $299, while supplies last.

Apple’s announcement came days after Palm launched its “Pre” smartphone, which some analysts say is the iPhone’s closest competitor for the consumer market.

“Apple’s strategy appears to be designed to take advantage of the current limited availability of the Palm Pre,” CL King & Associates analyst Lawrence Harris wrote. “It is clear that Apple intends to maintain its leadership position in the smartphone market, given its decision to cut prices.”


Apple executives did not comment on any impact to profit margins from the cheaper iPhone or Mac Air notebook -- which at $1,499 is still costlier than computers from the likes of Dell Inc or Hewlett-Packard Co that run on Windows operating system software.

AT&T said the halving in price would not affect its profit targets, and that it was sticking to its objective for wireless margins in the low 40-percent range.

Apple’s stock is historically volatile during the company’s June developer conference. It dropped about 7 percent over the course of the conference in 2008 and about 4 percent in 2007.

Much of Monday’s event was taken up with new features for Apple’s best-selling gadget. Executives announced that new iPhones will support TomTom satellite navigation devices and support multiplayer games such as Asphalt 5.

The consumer electronics giant showed off a new 15-inch notebook with improved battery life, a $300-cheaper Mac Air -- its thinnest laptop -- and, as expected, its highly previewed “Snow Leopard” Mac operating system software.

Apple’s new MacBook Air notebook now starts at $1,499. The company also unveiled a new 13-inch MacBook Pro starting at $1,199, and a 15-inch laptop with longer battery life, addressing a perennial consumer concern.

But some of the hundreds of software developers, analysts, reporters and industry insiders that gathered in downtown San Francisco had hoped to catch a glimpse of founder and Chief Executive Jobs, who has stayed out of public view amid persistent speculation over his health.

Suspense and speculation had mounted in the months before Apple’s annual Worldwide Developers’ Conference, with hopes ranging from a cameo by Jobs -- out till the end of June on medical leave -- to revelations of a game-changing tablet mini-PC or cheaper iPhone.

Jobs, a pancreatic cancer survivor, has not appeared despite speculation he would, after springing his leave of absence on stunned markets in January by saying his health problems were more complex than previously thought.

Despite a slowing product line, worsening consumer spending and an uncertain succession plan, investors have quickly got comfortable with the idea of a Job-less Apple. Shares of the maker of the iPod and iPhone have surged 85 percent since shortly after the bombshell was dropped on January 14.

Executives declined to comment on his whereabouts on Monday. In January, Jobs said he would be out of commission till the end of June. Apple executives have since reassured investors that Jobs, credited with building the company into a tech powerhouse, was still involved in strategic decisions.

Jobs, a college dropout, co-founded Apple in 1976 with his friend Steve Wozniak in a Silicon Valley garage. After a falling-out with the board, he left the company in 1985.

Apple floundered, setting the scene for his return in 1997. The company has flourished under Jobs 2.0, rolling out the concept of a computer as a ‘digital hub’ along with the now-ubiquitous iPod and iPhone.

Additional reporting by Clare Baldwin and Sinead Carew; Writing by Edwin Chan; Editing by Peter Henderson and Richard Chang