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Why Apple Got It Right

CEO Steve Jobs looks great while getting you to spend another $100 in his stores.

Steve Jobs is




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CEO wants to return to you $100 of what you paid when you bought your iPhone too early -- provided, of course, you spend the $100 in one of his stores.

Why do I get the feeling this is exactly what Steve Jobs had planned all along? Chances are that the extra $100 you would have saved, had the iPhone been appropriately priced to begin with, would have been spent outside an Apple store.

Now it's staying in Apple's coffers, and Steve Jobs looks like a caring, responsive CEO who didn't mean to hurt anyone's feelings.

So Apple wins again. Forget the news stories that say Apple cut its price because sales were sluggish. On Tuesday, iSuppli, a research firm,


that nearly one in 50 mobile phones sold in the U.S. was an iPhone, and that Apple was on track to sell 4.5 million iPhones this year. On Thursday, after the price cut news, iSuppli


that view.

"iPhone outsold all competing smartphone and feature-phone models in the United States in July on an individual basis," iSuppli said in a report. "Apple was generating a robust hardware margin at its previous pricing, and will still be profitable at the new pricing."

I suspect the repriced iPhone will be a wash: What it loses from the abrupt discount it will easily make up in holiday-season volume. And it will end the year with an even higher market share in handsets.

But what about Apple's stock? It has fallen more than 9% to about $132 early Thursday from late Tuesday. Here as well, I respectfully disagree with colleagues who suggest that Wall Street was disappointed with Jobs' announcements, particularly the cheaper iPhone.

After all that turmoil, Apple is up slightly over the past week. It was a classic case of buying the preannouncement hype and selling on the news. It may even offer a last-chance to buy in at this level.

Over at


Tech Trader Daily blog, there is a good


of analysts' preliminary reactions to the iPhone news.

The bottom line: Analysts were taken aback by the timing and the degree of the iPhone discount, but overall they remained "fairly enthusiastic" and few dared to lower their ratings or price targets.

Apple doesn't take pride in disappointing investors, and it may be that this iPhone discount, coming sooner rather than later, is aimed at just that.

The iPhones sold in July and August will bump up the average selling price, and if the discount spurs more people to buy iPhones in September, the volume number will be higher as well. It will be interesting to see how Apple spins this in its October earnings report.

Yet investors should be mindful that there is one major vulnerability facing the iPhone, although it wasn't on display at Apple's San Francisco event on Wednesday. Apple may have hobbled its potential iPhone sales by partnering with


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as its sole provider.

I'd argue that AT&T is good for AT&T, but bad for Apple.

First, AT&T has been the poster child for the cause


"Net neutrality." Many consumers don't get worked up by that debate, but the technophiles who are the earliest adopters of hot products like the iPhone do. And it's prevented a lot of them (including me) from buying an iPhone.

Beyond that, ever since AT&T bought Cingular, its wireless service has alienated a lot of mainstream customers. The


on echo that theme. Hacks are emerging to allow iPhones to use any mobile provider, but they remain too difficult for many iPhone users.

Worst of all for Apple, AT&T doesn't seem to be trying very hard to sell iPhones. According to Piper Jaffray analysts Gene Munster and Mike Walkley, AT&T's stores sell one iPhone for every seven that Apple sells. Piper Jaffray has no underwriting relationship with Apple or AT&T.

Over at, a blog concerned with all things Apple,

contributors noted

that there are some AT&T stores where the marketing effort for iPhones is muted. It seems that this is becoming a lopsided partnership, with Apple essentially carrying AT&T and all its anti-consumer baggage.

Incidentally, that Piper Jaffray report included one of the few attempts to estimate iPhones sales this quarter. Munster and Walkley staked out Apple stores, counting sales of iPhones and other merchandise. They project between 730,000 and 800,000 iPhones this quarter.

Piper also estimated 866,000 Mac computers would be sold. Those numbers helped to buttress his aggressive price target of $211 for the stock in the coming 12 months.

So the iPhone is selling well. Lowering its price will certainly beef up Apple's market share in the mobile-handset market within six short months of its launch. And longer term, that will translate into more Apple revenue.

But if Apple really wanted to unlock the true revenue potential of the iPhone, it would break its covenant with AT&T and allow any and all mobile-phone service providers to sell the iPhones to their customers at the new, attractive price.