Apple unveiled an upgraded iPhone with a faster Internet connection and satellite navigation capabilities and priced $200 lower than current models. (Video: Steve Jobs discusses the new 3G iPhone with CNBC's Jim Goldman)
Following the announcement, shares of Apple , which have gained about 50 percent in the last three months, fell as investors took their profits after boosting the stock in the lead up to the widely-expected announcement. The stock was up yesterday, but reversed its gains Wednesday.
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"It's amazingly zippy," Apple CEO Steve Jobs said, showing off the highly anticipated encore to the device that melds a mobile phone, iPod media player and Web browser, which will now come in black and white.
The new entry-level iPhone will cost $199 with 8 gigabytes of memory, compared with the $399 price of the older-generation phone with similar memory.
A new device with twice the memory will cost $299 and go on sale in 22 countries on July 11.
The new iPhone will run on third-generation (3G) wireless networks and includes satellite navigation capability, Jobs told developers at a conference in San Francisco, about a year after the original iPhone went on sale.
Apple has sold 6 million iPhones, Jobs said, and analysts say the business could eventually match the size of its Macintosh computer or iPod media player businesses.
Analysts have said Apple needed to slash the multimedia gadget's price and upgrade it to work over so-called 3G, or third-generation, wireless networks to hit the company's target of selling 10 million iPhones by the end of 2008.
Apple has inked deals for wireless carriers in a total of 70 countries to carry the new iPhone.
AT&T, the exclusive U.S. carrier for the phone, said its plans for the phone will start at $39.99 per month, plus $30 for unlimited data. (See CNBC's exclusive interview with Steve Jobs at left.)
That works out to be a $10 increase from the cheapest plan for the first-generation iPhone.
"This positions Apple well vis-a-vis other smartphone competitors such as Nokia and Rim," said Shannon Cross of Cross Research. "iPhone is no longer an expensive device. It's now priced at the mass market."
Cross, who expects Apple to have sold 13 million iPhones by the end of 2008, said she expects Apple's stock to recover once investors realize the benefit of the lower prices.
Shares in Palm fell as analysts said the relatively affordable iPhone prices could hurt rivals. Palm sales of its Treo smartphone were hurt last year after the first version of iPhone was announced.
Research in Motion , maker of BlackBerry, the wildly popular wireless email device, also fell initially after Apple said iPhone users would be able to receive push email wirelessly.
--Reuters and AP contributed to this report.