aapl

That is a stupid commentary.
Would you rather sell 10 Rolls Royce's at $300,000 each, or 20 million Honda's at $18,000 each.
The point is market share.................DUH

Are you saying the market is wrong for bidding up shares?

Two things here:
1) You lack financial knowledge and understanding
2) Your article is heavily biased

I think it's probably the latter. Which is probably worse than the first possibility.

I am pretty certain they are not giving up 200m.
Why?
1) Many of iPhone components are commodity inputs, which means volume drives costs down. Reducing the iPhone price & the new iTouch will increase unit demand thus Apple can procure the hardware at lower cost. Also, shared costs between iTouch and the phone will be spread among more units which lifts margin due to Economies or scale & increased supplier power. Read Dr. Porter if you don't know get my gist.

2) Apple will likely come out with 2nd generation phones at a higher selling price- in not too distant future. Thus, avg SP will go north.


Certainly costs will not drop any where close to the selling price decrease, but the cost reductions will be significant; coupled with higher prices on new devices, profit decrease will not be as the 200 cut in sales price.

From Apple's perspective, the price cut came 9mos later not 2mos since they announced pricing at the beginning of the year. Even though the phone wasn't released, they committed to a price which affects dealings with suppliers & other handset companies plotting strategy. iPhone knock-offs beat the Apples phone to market. If the initial price was 399, there would be less interest from other firms to compete. It's Apple's fault for publicizing price and hyping the product for 7mos giving all other players a view of what the competitor will be like before it even occurs.

Other MP3 manufacturers didn't pay any attention to the iPod when it first arrived. There wasn't a windows iTunes for awhile, so the market potential was handful of people that even had Macs before the iPod (or stil had them after Mac was nearly eliminated) The iPod sneaked under the radar of the market and soon as windows iTunes was released and Apple pushed marketing out iPods sales began to explode and never looked back. By the time others could react, Apple had it sewed up with now 70-80% share. Thus, the iPhone gets alot of attention for other firms that now know to anticipate and watch closely what Apple is doing. Heck, it was almost like mock sales runs were being performed with all the polls and surveys taken from Jan to July, so Apple didn't have the level of secrecy and surprise Jobs covets.

The wireless handset market is very different, Its fast paced and maturing in terms of new users. Without a vast segment of non-users to target, wireless firms have to target each other for new sales. Unlike to iPod, the market was very under-penetrated and allowed Apple to adopt MP3 users that didn't come at the direct expense of competitors.

Apple had to switch to a penetration strategy to drive initial adoption and carve out their territory before the dynamics change unfavorable. Apple's problem was they had to accomplish this with one device. (to me the 4&8 are the same, well its not an issue now) - which involves appealing to a range of price decks with one offering. It would be preferable to have at least 2 devices that actually have some differences in features so price sensitive consumes don't have to pay for what they don't want. Other firms do this, notably RIMM. Blackberries had there own niche and didn't compete directly with other cell phone makers, just the courts and a guy over a patent. But, when blackberries spilled into the consumer market, with camera etc and lower price, competitive pressures elevated and makers of basic handsets started making the phones more "smart" . Currently, the competition is pretty intense and will only increase.

Indications of masses of people waiting for a lower price point gave Apple reason to capture those in that price deck soon, not risking demand later. Apple's product cycles are usually pretty short anyway; they move fast, I may be possible that a new phone is on the horizon maybe sooner than we really expect. If you think people are bitching now, imagine replacing the 600 phone with a improved and upgraded model @ 600 right before christmas when people have already bought gift and phones are under the tree wrapped, That would be very funny. Dropping the price now gives some separation to a possible new model. Jobs was talking about Christmas; a thought that almost mad me throw up in 90 degree weather. "Christmas Already" I am totally speculating, but it's too early judge if Apple has made the wrong decision because we don't have a clear idea of the the future, which Apple does. We'll see. Stocks are priced on their long-term outlook, not the immediate future. AMZN proves this. And has for years at the multiple it trades.

I think investors were glad to see that sales are not a weak as what the price reduction may have implied. Giving up profits now could translate into higher EPS in the future. That in the purpose of a penetration strategy.It works well when switching costs are high.

If the loss in revenue now causes the future sales / EPS expectations to go up, then the stock should increase. The market is more confident that Apple is gong to be aggressive the wireless industry and that current sales are actually OK.

I would not buy the shares though. Expectations priced in are too high for the return offered with the rich prices. I wouldn't necessarily sell either, just many other places to place money that offer a better risk/return ratio. Apple has made a huge run. Thanks to journalist like yourself who have been talking negative on Apple the whole way up. Now they don't listen to you guys because the stock goes higher investors are deaf the bearish media. It's evident by the reaction to articles and the continued optimism of the stock. Now that so many are bulls on Apple, 200+ price targets etc, the only people left to push shares higher are the financial press.

It would help if journalist provided convincing analysis based on facts, at least include facts, not fill header to footer with negative sentiment. The Barron's piece was awful, herb Greenberg comments were embarrassing, but your's at least, is the best or the worst.
Give us something we can use. All your readers know you have the ability to do so, its frustrating to see it not happen.

Sorty, but $200 is $200. The potential increase in sales is possible but the drop in component costs has already happened. If Apple sells another 100k to 200k iPhones that will not significantly change.

You are talking around the fact that AAPL left money on the table. The core cost of building the phone will not materially change.

The only thing that Apple left on the table is that they are playing their hand, in a business that is completely
new to them, to win. They have figured out the price points. From their experience in the market place.(not from idiots like you Doug who said the price was too high BEFORE you said it was too low) They have created a slot for the new higher end phone (16GB, 3G network) to come. At the end of the day it's the profits not the revenue and given the costs of components and the economy of scale sharing the production lines with the new iPod Touch the price cut is justified and good for business.

Doug,
responding to your comments #3
The potential increase in sales is possible but the drop in component costs has already happened.
I assuming you meant to say the component costs are the same and the drop in SP leaves $200 on the table. I see your point now, but do you not think Apple would ever reduce it's price. No one expected the price $600 forever. IA price cut leaves money on the table; that's what you're saying.

Ok, let's say the Apple held the price for another month or so, say they could sell 1 million phones. That's 200 million in cast- as you say on they table. Apple's value is 120billion, market is saying that's what the PV of CF are worth. Take out 200 million and and that is 16 bps of value, so take the stock down two dimes. More accurate -22 cents,

200 million is insignificant to Apple's market value. I think the issue is that Apple's value maybe shouldn't be 120B so that 200 million is a little more meaningful. But we would still not even be talking about paper money yet. Does the price drop change our expectations about Apple's potential next year, and the years after that. Usually investors concentrate on a 5 to 10 year outlook for projecting sales/earnings. If the price reduction stems from a lack of product acceptance, then likely our who expectation complex for the years is head is shifted. If the market thinks the current / most immediate sales& earnings has a bearing on every earnings report subsequent, we have a problem. Now, we are talking money, more than just washington's.

If the market holds the view that money left on the table will result in a much larger stack later that Apple can take off, then the stock goes up. They are just parking it there for time being. It's an investment. Cut price now, recoup much more later.

If we were talking 5m 10m 15m units leaving $200/unit in the table that would be more significant. My guess is that the market's initial reaction was that it was going to require leaving that on the table for an indefinite period of time hopefully meet the lower end of expectations.

With Apple hitting 1m already, phones have been selling fairly well but going forward that 200 will shrink, and as margins expand as I explained.

We have to know the demand elasticity and the slopes of cost/experience curves to get a reasonable idea of the actual CF impact will be: how much can cost be reduced multiplied how many more units can be sold at the lower price.

The most import issue is: Can Apple really be a player in the wireless market? Right now its looks like they are holding their own and Apple always creates opportunities.

But We'll see. If had to pick, I would say Apple can continue to amaze. So much has to happen and there will be other companies trying for it to not. What's my confidence (Binary-not probability) level? maybe 10-20%. If the Price were 100 or so, I would be much more confident with a purchase decision. Not much margin for error at current levels.