To Sustain iPhone, Apple Halves Price – WSJ.com

Apple Inc. lowered the price of its entry-level iPhone by half to $99 and rolled out a next-generation model, looking to sustain the momentum for its popular smart phone amid the recession and fresh competition.

Apple also announced several new lower-priced notebook computers at its annual conference for software developers, which kicked off Monday. Chief Executive Steve Jobs, who went on medical leave in January, didn’t make an appearance.

Toni Sacconaghi, an analyst at Sanford Bernstein & Co., said Apple’s price cut shows the company is making an aggressive move to “enhance it’s first-mover advantage” by getting as many users as it can now despite the cost. He said the $99 price could increase iPhone demand by as much as 50%.

Overall, Apple has sold more than 20 million iPhones in the past few years. The device, which has become one of Apple’s main growth engines, has shaken up smart-phone rivals such as Palm Inc. and Research In Motion Ltd.

Apple also unveiled the new iPhone 3G S, which looks similar to existing models but is faster and can capture videos. It will go on sale June 19 in eight countries, including the U.S., France and the U.K. Prices start at $199 for customers that sign a new two-year service contract with AT&T Inc. Prices are $200 higher for AT&T customers who arent eligible for an upgrade.

Apples iPhone 3G price cut will make the market more challenging for rivals, said analysts. “These are very aggressive prices,” said Richard Doherty, an analyst with technology consultancy Envisioneering Group. He said the $99 model will appeal to many consumers who dont need state-of-the-art features.

Analysts said they are also watching to see if AT&T — the iPhones exclusive wireless carrier in the U.S. — will cut its monthly service prices or provide more flexibility in its plans. The monthly plan is expensive for many would-be users. According to AT&T, IPhone users currently pay more than $90 a month, on average, to make calls and access data.

AT&T declined to comment on whether it plans to change pricing. The company said its customer acquisition costs for the new iPhone model and the discounted iPhone 3G will be similar to what the carrier has been paying thus far. Analysts said that suggests the company wont be providing higher subsidies to Apple than it does now.

New phone looks good, but as much as I love my iPhone 3G and would love to upgrade, it looks like a sucker bet for anyone upgrading unless they’re still using a first generation iPhone … I think I’m going to hold off until December when I am eligible for an upgrade to see if there are any discounts then.

I’m also going to wait and see if Apple does decided to end its exclusivity contract with AT&T in 2010. If so, then I’m definitely going to wait until I have better options for a carrier.