iPod gets touchy, with price cut

Roger Kay, president of Endpoint Technologies, said the rapid price cut is probably the result of slower-than-anticipated demand.

"It is a very interesting sign. My first suspicion is that they aren't getting the volume," he said.

But AT&T, the iPhone's exclusive wireless service provider, dismissed concerns about iPhone sales.

The 8GB iPhone gets a US$200 price drop.

"We are very pleased with how customers have responded to the iPhone," said Mark Siegel, a spokesman for AT&T. "And the new pricing by Apple will do nothing but make the device more popular. So we view this news very positively."

And Jobs reiterated Apple's statements that it plans to have sold 1 million iPhones by the end of the current quarter in September. Before the price cut announcement, Piper Jaffray also echoed its previous estimates that Apple would hit that mark. Still, the financial analyst community hasn't had the best track record predicting iPhone sales so far.

On the software side of things, Apple announced a new version of its iTunes media player, which is scheduled to be released Wednesday night, US time. A new feature in the updated iTunes allows users to create ringtones from any segment of a song they've downloaded through the iTunes Store. That service costs 99 cents per ringtone, and does not include the price of the song. The ringtones will be compatible only with the iPhone.

Apple also announced the iTunes Wi-Fi Music Store, which allows consumers to buy songs wirelessly. Users can preview, download and listen to songs right away on their iPod Touch or iPhone (after a software update expected later this month). Upon syncing the device with a computer, those songs will be transferred into the user's iTunes library.

Apple fans have been clamoring for this capability ever since the iPhone was introduced, but the company wanted to make sure to get it right the first time before plunging in, said Eddy Cue, vice president of iTunes at Apple. "We didn't want to have a crippled store," he said, meaning a store that didn't have the same inventory as the regular iTunes Store or that didn't provide the same shopping experience.

The wireless store is just confined to music at the moment, however; people won't be able to purchase TV shows or movies through the Wi-Fi store, Cue confirmed. He declined to specify when that might become available.

The new iPod nano does video, too.

Along with the Wi-Fi Music Store, Jobs announced a partnership with Starbucks. People with an iPod Touch or iPhone who walk into a Starbucks coffee shop will see a button pop up on their screen. They will then have the option to buy the last 10 songs that have been playing in the store, as well as music from featured artists at Starbucks.

Apple's stock did not react well to Wednesday's news, tumbling 5.13 percent, or US$7.40, to close at US$136.76. The stock has been extremely volatile this year, and it tends to follow a "buy on the rumor, sell on the news", progression.

But the movement could also be related to concerns that Apple's margins could be in for a hit with the steep discount applied to the iPhone. The company guided more conservatively on earnings per share for the current quarter when it announced third-quarter earnings in July, perhaps well aware that steep price cuts were in the offing for the iPhone. That is, unless it needed to stimulate demand more than previously thought.