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Jobs tests patience of Apple loyalists, investors

Apple always has been known for design, not discounts. So that is why investors and company loyalists were taken by surprise Wednesday when company CEO Steve Jobs announced a $200 price cut on the 10-week-old iPhone. Some analysts think the price cut is a sign that the much-hyped gadget is not meeting sales expectations.
Apple Announces iPod Upgrades
Apple CEO Steve Jobs introduces a new iPod Nano this week at an event where he also announced a price cut on the new iPhone.Justin Sullivan / Getty Images
/ Source: contributor

There he was, not quite Sexiest Man Alive, but pitchman for Sexiest Gadgets Around. Steve Jobs, back on stage, dressed in his trademark black mock turtleneck and blue jeans, unveiling the latest from Apple.

You almost want to close your eyes when Jobs describes new products, so seductive are the words, so alluring are the tales of revolutions in technology.  Join him, and think different. But keep your eyes open and your hand on your wallet.

That was the message some Apple loyalists got Wednesday when Jobs announced a $200 price cut on the company's iPhone, which went on sale with huge fanfare just 10 weeks ago.

Immediately after the announcement, Apple stock dropped by $7, more than 5 percent as investors questioned whether the iPhone was living up to sales expectations.

But the sharpest complaints came from people who had paid $200 too much for their iPhone.

“Apple screwed you,” proclaimed, “the Unofficial Apple Weblog.”

“I feel duped and used,” said one commenter at, a site for rabid Mac users.

“Why?” shot back another commenter. “Apple wanted to sell you one for 500. You wanted to buy one for 500. There is no victim.”

On Thursday, Jobs was forced to acknowledge the outrage with a rare apology and an announcement that the company will provide a $100 retail store credit to anybody who previously bought an iPhone and has not already received a rebate or credit. (Apple previously had said that anyone who purchased an iPhone in the past 14 days could get a refund of the $200 price difference -- or a full refund if the product is unopened.)

"Being in technology for 30+ years I can attest to the fact that the technology road is bumpy," Jobs said in an open letter posted on the company's Web site. "If you always wait for the next price cut or to buy the new improved model, you'll never buy any technology product because there is always something better and less expensive on the horizon."

Apple has never been known as cheap. Apple is known for design, not discounts. For years, the company “refreshed” a product line by adding features and keeping prices steady. Discounts applied only to much older products, including the iPod, which was introduced in 2001 and has sold more than 110 million units.

That is one reason Wednesday's price cut came as such a shock.

Jobs acknowledged that the company needs to do a better job taking care of early adopters and apologized for disappointing customers. And he stood by the price-cut decision, saying it was "the correct decision" to maximize sales for the upcoming holiday season.

At least one analyst agrees, saying Apple made a smart move, even if investors initially don’t get it.

“That’s the difference between an outlook that’s a week away vs. a year or two years away,” said Eugene Munster of Piper Jaffray.

Munster issued a bullish report, concluding that Apple had made shrewd decisions. He praised improvements to the iPod. The price cut for the iPhone is a measure of Apple’s aggressiveness, not weakness. He agreed with Jobs’ statement that Apple is on track to sell 1 million iPhones by the end of September.

Munster expects the iPhone discount to significantly boost sales, transforming the product from a high-end niche to the mainstream.

“They’re putting the hammer down,” he said.

Another analyst, Rob Enderle of Enderle Group, had a different take. “I think people realized that iPhone sales weren’t going well and what Apple announced was a trade-off product that may not sell well either,” he said.

For some consumers, the barrier to buying an iPhone is not the handset cost but pricing set by AT&T, the exclusive carrier, said Enderle. AT&T requires a two-year commitment and the cheapest plan is $60 a month, significantly more than for a typical cell phone.

“I think the market is adjusting to the reality that some of the huge projections for the company were overstated, and Apple is having to deal with the reality of product costs and service costs,” he said.

Deal with reality?

That’s not how Steve Jobs established himself as one of the most-watched leaders in business. Back in the early 1980s, an Apple employee said Jobs’ charm, brains and force of will created “a reality distortion field.”

Over the next few months, we get to see if Jobs can still work his magic.