Computer Hardware

Apple Offers $100 iPhone Rebate; Stock Tumbles

Apple Chief Executive Steve Jobs said Thursday the company will offer a $100 store credit to people who bought the iPhone before an announced $200 price cut, even as investor concerns about Apple's profit margins pushed the company's shares lower for a second consecutive day.

Apple iPhone

The offer applies to customers who bought iPhones at either Apple or AT&T stores and who are not receiving a rebate or other consideration, the CEO said in a letter posted on Apple's Web site.

"I am sure that we are making the correct decision to lower the price of the 8GB iPhone from $599 to $399, and that now is the right time to do it ... It benefits both Apple and every iPhone user to get as many new customers as possible in the iPhone 'tent'. We strongly believe the $399 price will help us do just that this holiday season," Jobs said.

But, he added, "we need to do a better job taking care of our early iPhone customers as we aggressively go after new ones with a lower price. Our early customers trusted us, and we must live up to that trust with our actions in moments like these."

Apple stock dropped more than 5% after the price cut was announced Wednesday and lost another 1.28% on Thursday.

"We want to make the iPhone even more affordable," Jobs said Wednesday at the launch event in San Francisco. Jobs said Apple remains on track to sell 1 million phones before the end of September.

The price cut immediately set off a debate on online tech forums between early adopters, who said paying a premium price came with the territory, and those who said they felt burned. The price reduction was too much too soon, some complained.

In a discussion on The Unofficial Apple Weblog site, the views were split evenly.

'Worst Timing Ever'

Many customers took the iPhone price cut in stride, however. Ryan Roth, who bought one for $599 on Friday after months of research, chalked up his purchase to "the worst timing ever."

"I realize this is not their problem: I agreed to the original price -- it's my fault," said Roth, 32, of New York, who has been thinking about getting a cell phone for four years but held out until the last week. "It just kinda sucks."

Apple spokeswoman Natalie Kerris said anyone who purchased an iPhone within the past 14 days and has the receipt can get a full refund under Apple's return policy if they haven't opened the product. If they have opened it, they still can get a refund of the price difference.

The steep price cut less than three months after the iPhone's launch on June 29 -- and the discontinuation of the 4-gigabyte iPhone, which sold for $499 -- were surprising from Apple, which usually keeps prices steady while adding new features. It normally discounts products only when they age.

Analysts said quick discounts are typical for the cell phone industry, however. The world's best-selling cell phone, Motorola's Razr, for instance, debuted at $499 but can now be bought for less than $100.

Learning Experience

"This is about Apple learning how to become a cell phone retailer," said Jeff Kagan, an independent telecommunications industry analyst based in Atlanta. "All of a sudden it's in the cell phone business, and everyone is trying to figure out how to measure it, and we don't know yet."

The newest iPod media players, also announced Wednesday, include a model called iPod Touch that incorporates the iPhone's touch-screen and adds the ability to wirelessly download songs directly from the new iTunes Wi-Fi Store. Also new are a version of the best-selling iPod, the Nano, that plays video and a larger capacity, 160-gigabyte version of the video iPod, newly dubbed the iPod Classic.

A customer at an Apple store at Southpark Mall in Charlotte, N.C., examines the new Apple iPhone during the first day of sales for the device, Friday, June 29, 2007. (AP Photo/Jason E. Miczek).
Jason E. Miczek

Apple also announced a partnership with Starbucks . Starting in October, the coffee chain's icon will light up on the Touch whenever a user nears a shop that has Wi-Fi access. Users can then download the song that's playing in that Starbucks shop or get a list of the 10 most recent songs played.

Apple executives said the revamped and expanded iPod line -- in which the iPhone is recast as the top model -- is the company's most robust lineup ever for the holiday season. In 2006, Apple sold a record 21 million iPod players during the holiday quarter, about 50 percent more than in the same period the year before.

Apple has now sold more than 110 million iPods since they debuted in 2001.