iPod touch price cuts 'may not be enough' given conditions

Posted:
in iPod + iTunes + AppleTV edited January 2014
Across the board price cuts announced by Apple on its iPod touch line of digital media players are "nice," but may not be sharp enough to drive a sales surge given economic conditions and the more aggressively priced iPhone 3G, according to one Wall Street analyst.



American Technology Research analyst Shaw Wu, who had previously recommended that investors reset their expectations for Tuesday's "Let's Rock" event, believes favorable commodity pricing on components such as NAND flash will allow Apple to absorb the new cuts without a material hit to its margins.



In fact, he suggests that the Cupertino-based company may even see some upside to margins in the coming quarters given its decision not to cut prices on the iPod shuffle. His concern, however, is that the new touch models are not priced aggressively enough for today's consumers, who may see more value in a $199 subsidized iPhone.



"As expected, the new second generation iPod touch has a slimmer form factor with lower price points of $229, $299, and $399, respectively for its 8 GB, 16 GB, and 32 GB models," Wu told clients. "While we are pleased to see lower pricing, we are concerned that price points may remain too high given the tough macroeconomic environment and relative to the 3G iPhone at $199 and $299."



Over at UBS Investment Research, analyst Maynard Um had a completely different take on the new price points for the touch, which he believed would not only make the players more accessible to a new range of customers, but also translate into increased earnings.



"We think [the] refresh of the iPod line is the necessary and appropriate strategy to maintain the firm?s dominant market share," Um said. "We expect the lower pricing to drive demand elasticity, and while the cost reductions could raise concerns about gross margins, we believe it will stimulate demand and benefit profits."



Both Um and Wu remain fairly bullish on shares of Apple, each maintaining Buy ratings on the stock with price targets of $195 and $220, respectively. They each agree that shares of the company have taken a beating recently as a result of broader market sentiment, not concerns over fundamentals.



"We continue to think Apple will benefit from further product refreshes, price elasticity and continued ramp of the iPhone," Um said.
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Comments

  • Reply 1 of 128
    AMEN! I was hoping for a REAL price cut. So stupid that the touch costs the same as an iPhone. Less functionality should equal LOWER PRICE!



    STILL waiting to replace my 3G iPod with an affordable replacement...
  • Reply 2 of 128
    Quote:
    Originally Posted by natego1 View Post


    AMEN! I was hoping for a REAL price cut. So stupid that the touch costs the same as an iPhone. Less functionality should equal LOWER PRICE!



    STILL waiting to replace my 3G iPod with an affordable replacement...



    IT IS a lower price, when you figure in the higher cost of the phone plan that you have to pay for with the iPhone.



    Apple doesn't make much profit, if any, on the iPhone. Where they make their money is on the kickback from AT&T. They're basically selling the iPhone for cost.





    I was disappointed with the price, too. I've been wanting a 32Gb iPod Touch so that I can put my whole music collection on it and use it as a jukebox for home and car, but the original $500 was too much. I was hoping it'd come down to more like $350. But I think I'll probably be buying one at $400 anyway.
  • Reply 3 of 128
    How can Apple sell an 8 GB iPhone for $199 and an 8 GB iPod touch for $229?
  • Reply 4 of 128
    mr. hmr. h Posts: 4,698member
    Quote:
    Originally Posted by natego1 View Post


    AMEN! I was hoping for a REAL price cut. So stupid that the touch costs the same as an iPhone. Less functionality should equal LOWER PRICE!



    When will people learn that the iPhone does not cost $199/$299? Hello? There's a 24 month contract that you have to sign up for as well.
  • Reply 5 of 128
    Quote:
    Originally Posted by Cubert View Post


    How can Apple sell an 8 GB iPhone for $199 and an 8 GB iPod touch for $229?



    Because AT&T pay Apple as well when the iPhone in sold.

    It is said that AT&T pay Apple around $300 for each iPhone sold, they are subsidising the cost of the handset to the user, just like many other phone companies.



    Apple get $499 for the iPhone and $229 for the iPod - simple.
  • Reply 6 of 128
    Quote:
    Originally Posted by AppleInsider View Post


    "While we are pleased to see lower pricing, we are concerned that price points may remain too high given the tough macroeconomic environment and relative to the 3G iPhone at $199 and $299."



    The macro economy is hard right now so people are going to prefer to save $30 up-front but spend $1000 - $2000 more over the course of a 24-month contract? What a tool!
  • Reply 7 of 128
    Quote:
    Originally Posted by natego1 View Post


    So stupid that the touch costs the same as an iPhone.



    So stupid than anyone would be so poor at arithmetic and then make a post about it.
  • Reply 8 of 128
    Quote:
    Originally Posted by Cubert View Post


    How can Apple sell an 8 GB iPhone for $199 and an 8 GB iPod touch for $229?



    it doesn't, an 8GB iPhone is around $1700 over the two year contract, the touch is $229 for the same two years.





    You can buy an unsubsidized iPhone, and if I remember correctly, it's around $400 (not entirely sure on the figure, but it's significantly more).
  • Reply 9 of 128
    seriously, i thought they would have lowered the prices of the ipod touch and increase the capacity size. i have the 8gb iphone 3g and i was wanting to buy a new ipod touch had they lowered the price and increase the capacity, but i will not now and just use my phone as an ipod and wait till they do something else about the ipod touch
  • Reply 10 of 128
    Quote:
    Originally Posted by Mr. H View Post


    When will people learn that the iPhone does not cost $199/$299? Hello? There's a 24 month contract that you have to sign up for as well.



    Maybe people really are as stupid as Wu believes:



    Quote:
    Originally Posted by Cubert View Post


    How can Apple sell an 8 GB iPhone for $199 and an 8 GB iPod touch for $229?



  • Reply 11 of 128
    How low can these prices go? No other company offers such quality for this price. I mean, if you wanna see $99 iPod nano just go to China Town, you might be lucky enough to find a $79 iPad nono.



    Jobs made a clear point that just 3 years ago Apple introduced first nano. It was 2GB Max. Now is 16GB for same price. How can anyone not buy Apple stocks.
  • Reply 12 of 128
    it amazes me that people are comparing the price of the iPhone and the Touch the way they are. Is everyone forgetting that the price of the phone plans went up 10$ per month when the initial phone price went down. Plus it is only 29$ more for the 8GB and the same price for the 16GB. Apple could probably charge less for the touches if everyone agreed to pay 10$ a month for 2 years, but we all know that can't happen.



    I don't understand why it is a big deal if someone gets the iPhone over the Touch. It probably makes Apple more net revenue in the end.
  • Reply 13 of 128
    elrothelroth Posts: 1,201member
    Quote:
    Originally Posted by Cubert View Post


    How can Apple sell an 8 GB iPhone for $199 and an 8 GB iPod touch for $229?



    Because you have to pay over $1200 for two years of a phone service contract with the iPhone - you're comparing apples and oranges. In fact, paying for one month of the phone contract (probably in advance) will add $60 right there.



    And from Apple's standpoint (as mentioned above), they get and estimated $500 total for an iPhone, when you add in carrier payments to Apple. I think the touch prices are good - $299 for 16GB compared with $199 for a 16 GB nano.
  • Reply 14 of 128
    u gotta wonder what the margins are on the touch. I mean they are making money at $229 but...it cant be as sweet as the 400-600 they pull in for what is essentially the same hardware (iphone). I gotta think the touch margins are around 15% which is TERRIBLE by apple standards.
  • Reply 15 of 128
    Quote:
    Originally Posted by natego1 View Post


    AMEN! I was hoping for a REAL price cut. So stupid that the touch costs the same as an iPhone. Less functionality should equal LOWER PRICE!



    Quote:
    Originally Posted by Cubert View Post


    How can Apple sell an 8 GB iPhone for $199 and an 8 GB iPod touch for $229?



    The real price of the iPhone is not $199 or $299 in a couple of different ways. The carriers subsidize the phone. The unsubsidized cost of the phone is $399 and $499. With AT&T you will also pay an addition $2000 over 24 months.
  • Reply 16 of 128
    Quote:
    Originally Posted by natego1 View Post


    AMEN! I was hoping for a REAL price cut. So stupid that the touch costs the same as an iPhone. Less functionality should equal LOWER PRICE!



    STILL waiting to replace my 3G iPod with an affordable replacement...



    8 Gb touch = $229

    8Gb iPhone = $199 + $69 x 24 months for a total of $1855



    The iPhone is subsidized the Touch is not. Any more questions?
  • Reply 17 of 128
    I know Apple has to be concerned about margins, but I would have much rather have seen the 8GB Touch start at $199 with the 16GB at $249 and the 32GB at $349.



    I agree with what others have said: The price of the iPhone is irrelevant, since that price depends on two-year agreements and kick-backs from AT&T to Apple, etc.
  • Reply 18 of 128
    boogabooga Posts: 1,076member
    The iPhone costs closer to $200-$700 additional over the 2 year contract if you already plan to have a mobile phone of some kind but it wouldn't have been 3G. If you were already going to have a 3G phone you're not paying any extra to have it be an iPhone. So people claiming the iPhone costs $1200 or more aren't being practical-- that's not the marginal cost for most people.



    I think the Touch is important to have to draw people to the platform who don't want to join AT&T (in the US) or who don't want to pay a monthly fee, but I do think the iPhone is similarly priced with more features for a lot of people.
  • Reply 19 of 128
    wizard69wizard69 Posts: 12,647member
    Here is my perspective. Do note that it is free.



    The Nano is a deviece that fills a specific niche, that being a MP3 player. What consumers will see is that storage space was doubled for the same price plus a couple of new features. Sure Apple could have been more agressive with pricing but this price leaves them room for discounts for the Christmas buying season.



    The Touch is a different story and in my opinion Apple blew it here. The problem here is the limited number of features added and the sad and disgusting tie in with Nike. I could almost accept that the arraingement of these models Touches if they where low end models and the high end was implemented to balance the line. We have yet to see indications of a high end model though.



    In any event the analyst missed one important issue, that being that the Touch is not just a simple MP3 player but in reality a nifty micro computer. Frankly it is one of the lowest cost E-Mail machines going. It is serviceable as far as web usage goes and other wise has an important set of base apps. In a true economic downturn a Touch can be a cheap way to stay connected to the net. Not that I think all the doom and gloom is warranted but the point remains that a low cost machine like Touch beats the expense of a laptop. In any event the existence of a cheap Touch is a good move if we are in a money tight era.



    Apples other mistake is not realizing that there will always be people with money and a willingness to invest in the state of the art. It is inexcussable that they did not have a 64 GB machine ready to go. Sure the flash is expensive today but that just allows them the ability to lower the price every four months or so. Frankly the whole line up has me puzzled, the only thing that makes sense is the Nano's and possibly the Touch if you think about it as a low end model. Other wise the line up and price points seem borked and Apple has a glaring gap to fill.



    Dave
  • Reply 20 of 128
    Quote:
    Originally Posted by natego1 View Post


    AMEN! I was hoping for a REAL price cut. So stupid that the touch costs the same as an iPhone. Less functionality should equal LOWER PRICE!



    STILL waiting to replace my 3G iPod with an affordable replacement...



    You and the analysts are freaking morons. The iPhone is SUBSIDIZED. The iTouch is NOT.



    I'll tell you want. Pay me $50 a month for two years and I'll sell you an iTuch for $99. Would that be good for you?



    Idiot!!!
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