Apple Launches New iPods, Slashes iPhone Price

Apple announced a major overhaul of its entire line of popular iPod portable media players and, in a surprise move, cut the price of its recently introduced iPhone.

Courtesy of Apple Apple's iPod Touch.

Shares fell on news that Apple would be slashing the price on the lower-end iPhone by 33%, to $399 from $599.

"We want to make the iPhone even more affordable," said CEO Steve Jobs, at the launch event in San Francisco.

Jobs said Apple remains on track to sell 1 million phones before the end of September.

In addition, the company said it will no longer be selling the 4 gigabyte version, according to Jobs.

Apple's bold move comes just hours after Microsoft reduced the price of its Zune digital music player by 20% to $199 as the software maker steps up its efforts to take market share away from industry leader Apple, which has sold over 100 million units since its launch in October 2001.

Earlier, the co-founder of Apple introduced the new lineup of iPods will now be equipped with the same touch screen technology utilized by the recently launched iPhone mobile handheld. The revamped product, dubbed the iPod Touch, will feature wireless connectivity and will allow customers to download music with the bundled Safari Web browser.

"We're approaching holiday 2007 and today we're going to refresh or replace every single product on this lineup," said Jobs.

Apple said it will launch a Wi-Fi music store to complement the new wireless technology and signed a partnership with Starbucks.

"Starbucks really has become this 'third place' between home and work," said Jobs. "We are in a unique position to leverage the innovation and global footprint ... to literally transform the marketplace."

The 8-gigabyte version of the iPod Touch will retail for $299 while the 16-gigabyte version has a price tag of $399.

Apple has sold more than 110 million iPods to date, Jobs told the audience.

The new iPod Nano, a smaller version iPod, will be redesigned with a 2.5-inch LCD screen and will be able to play video content and video games. The 4-gigabyte version will cost $149 while the larger 8-gigabyte version for $199.

The hard drives for the new "classic" versions of the iPod will be upgraded to 80 and 160 gigabytes, with respective prices of $249 and $349.

Apple's chief executive also said a new version of its iTunes store will support customizable ringtones for use on the iPhone. The ringtones will cost an additional 99 cents on top of the price of the song.

In usual Apple fashion, the company was vague on details of the product launch ahead of the event. Analysts widely expected the product to be a touch-screen iPod similar to the iPhone.

AP A consumer holds the Apple iPhone.

Ahead of the event, Apple fans and Wall Street analysts alike speculated on several other potential products such as an iPod equipped with Wi-Fi, an iPhone Nano or a content announcement that would bring the Beatles catalogue to iTunes.

The stock gained 11% in the last five sessions in anticipation of the product launch.

Peter Kang is a markets reporter for CNBC.com and can be reached at .

© 2009 CNBC.com