Apple Hits Hard Road

Updated from 3:15 p.m. EDT

SAN FRANCISCO -- Apple's (AAPL Quote) decision to slash prices on its iPhone has investors fretting that the do-no-wrong tech giant is taking its lumps in the bruising cell phone market.

Apple shares slipped again Thursday as traders tried to sort out the implications of Apple's move to lower the cost of the 8-gigabyte iPhone from $599 to $399 and to end production of the 4-gigabyte phone that was priced more affordably.

The stock was recently off more than 1% to $135.16.

Apple's price cut, announced Wednesday, came just two months after the iPhone debuted, and it overshadowed the unveiling of its new lineup of iPods. Apple shares fell Wednesday by 5%.

"The iPhone news was clearly the biggest surprise" yesterday, says Darren Chervitz, director of research for the $102 million Jacob Internet Fund, a long-term Apple investor.

Investors hadn't expected that a price cut would happen before the holiday season -- or before the iPhone's launch in Europe. Many are clearly worried that timing of the price cut suggests that phone sales may be been less lofty than expected.

Later Thursday, Reuters reported that Apple would offer earlier iPhone buyers a $100 store credit.

The price cut also clouds the impact the iPhone will have on Apple's finances. Apple records iPhone sales piecemeal over two years, and reveals little about the financial terms of its exclusive deal with AT&T (T Quote). Analysts and investors say this makes it difficult to forecast Apple's earnings potential and, in turn, to place a reasonable price on its stock.