Apple drops entry iPhone to $99, unveils new model

SAN FRANCISCO — Apple Inc. slashed the entry price for an iPhone in half and lowered some laptops by $300 Monday, the company's first dramatic price cuts since the recession began a year and a half ago.

With co-founder and CEO Steve Jobs absent until his medical leave is over at the end of June, Apple's biggest unveiling at its annual conference for software developers was a new model of the iPhone, the 3G S. It looks the same but sports a faster processor, longer battery life, an internal compass, a video camera and a photo camera with better resolution and auto-focus.

A 16-gigabyte version of the 3G S will cost $199 and a 32-gigabyte version will be $299.

The 8-gigabyte iPhone 3G, which came out last year, now costs $99, instead of $199. When the iPhone debuted two years ago, eager Apple fans had to shell out $499 for a 4-gigabyte version and $599 for 8 gigs.

Apple is known for ending events with a last-minute surprise, leading to some anticipation that Jobs might make a cameo in Monday's two-hour presentation. But he did not take the stage, and Apple's top marketing executive, Philip Schiller, exited without uttering the company's signature line that there would be "one more thing."

The latest iPhones go on sale June 19, just as two-year contracts for the buyers of the original models are expiring and Apple faces tougher competition from the likes of Research in Motion Ltd. and Palm Inc. On Saturday Palm came out with a well-regarded iPhone rival, the $200 Pre.

Industry analyst Michael Gartenberg, with the Interpret market-research firm, said the new iPhone pricing breaks through an important barrier for consumers. It will likely cause other smart phone makers to offer something similar, he said.

"Every $100 you move down in consumer electronics brings in a lot more customers," he said. "Ninety-nine dollars is a psychological price point, so that's a real barrier to move through. It becomes something people can afford — it becomes an affordable luxury."

Shares of Cupertino, Calif.-based Apple slipped 82 cents to close at $143.85.

Schiller said in an interview that $99 iPhone will reach people just joining the smart phone market. But lowering the price could be risky for Apple unless its new versions have enough appealing features to keep them selling briskly at higher prices. AT&T Inc., the exclusive carrier of the iPhone in the U.S., said Monday it's confident its wireless profit margins will hold steady overall. AT&T shares fell 16 cents to $24.40.

Apple might also be banking on expanding the profits it reaps from taking 30 percent of the revenue from downloadable applications on the iPhone and the iPod Touch. A new version of the iPhone operating software, available for download June 17, lets software developers sell additional content, like electronic books or extra levels to a video game, within applications.

Among other upgrades, the new iPhone software will let people download movies and TV shows using the device's cellular connection. It will let users send photos and videos the same way they send text messages, bringing the iPhone in line with other smart phones. (AT&T won't offer this feature until late in the summer.) And the new software will let parents limit the kinds of applications kids can download.

Apple had already announced other new features in the new software — such as the ability to cut, copy and paste text — and the ability for "tethering," which means using the iPhone to connect a computer to the Internet. Twenty-two wireless carriers will enable tethering. AT&T says it will also have tethering some time in the future.

For its MacBook line, Apple showed off new laptops that boast longer battery life and faster processors. The company rolled out a new 13-inch MacBook Pro that starts at $1,200, or $100 lower than an existing similar notebook, and a 15-inch Macbook Pro that starts at $1,700, $300 less than the current model.

It also lowered the price on the ultra-thin MacBook Air to $1,500 from $1,800. The 17-inch MacBook Pro, unveiled in January, costs $2,500 and up, though it now has a faster processor at the same price.

Apple also is trying to steal share in the computer market by enhancing its Mac operating system. The next version, Snow Leopard, comes out in September, before Microsoft Corp.'s next edition of Windows hits PCs Oct. 22. Among Snow Leopard's improvements is built-in support for Microsoft's Exchange Server software, so Apple programs for e-mail, calendars and contacts could become more useful in corporate settings.

One thing looming over Apple is the growing popularity of cheaper, stripped- down laptops sometimes called "netbooks." They are one of the few segments of the overall PC business that has been growing in the recession, while Apple's Mac revenue dropped 16 percent in the most recent quarter.

Jobs has said Apple doesn't know how to build a sub-$500 computer "that's not a piece of junk." That doesn't mean Apple won't someday try to enter that market, but on Monday at least, Schiller sounded similar themes. He said in the interview that netbooks are merely "very underpowered, poorly designed cheap notebooks."

"They have poor keyboards, poor screens, and none of the features and capabilities to do what a MacBook, for example, can," he said. "We think those products are below the quality standards of something Apple would like to make."