Dave Gonigam

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iPhone Index trending down -- way down

It's been a while since we've checked in with the iPhone Index, our highly unscientific but anecdotally revealing measurement of the American consumer's strength.  It's not so much a number as it is a concept: A product that generates a lot of consumer buzz even before its release ought to generate a lot of sales — unless the American consumer is feeling the cumulative strain of adjustable-rate mortgages, credit cards, and student loans.

The iPhone went on sale June 29, and early readings of the iPhone Index were inconclusive, but I figured there might be news today with Apple chief Steve Jobs's latest ooh-and-aah dog-and-pony show… and I was right:

“And so we want to make iPhone even more affordable for even more people this holiday season and so we’re going to do something about that today. We’re on track to ship our millionth iPhone by the end of this month, and so to get ready for the holiday season, here’s what we’re going to do: The vast majority of customers want the 8GB iPhone. So today, we’re going to focus on just the 8GB model.”

“The 8GB isn’t going to sell for $599, it’s going to sell starting today for $399. We want to put iPhones in a lot of stockings this holiday season,” said Jobs.

Now let's digest this, because Jobs is a terrific showman; I stand in awe of his ability to evangelize for his company's products.  But if you get beyond the carnival-barker language here ("I know this is stupendous, but let me tell ya what else I'm gonna do!"), there are two unmistakable takeaways:

  1. Apple's original projections included one million iPhone sales by the end of this month, the first full quarter since release.  But here we are with 25 days before that deadline, and to stay on track with that goal Apple is cutting the price immediately.
  2. Apple is cutting by one third the price of a product that's been on sale for less than three months.  (Bet those early adopters feel like chumps now, huh?)  Even if we account for the fact that Apple is discontinuing the lower-end 4GB model that sold for $499, that's still a 20% reduction on the cheapest iPhone available.  I know it's in the nature of consumer electronics to achieve ever-greater sophistication at ever-shrinking price points, but this is ridiculous.

Wall Street wasn't fooled by Jobs's presentation, whose main purpose was to trot out a new touchscreen iPod with an iPhone-type interface.  Apple stock traded flat today until Jobs began speaking at 1 PM Eastern, and immediately got whacked.  It was down 5% by the close.

But the story here, and the point of the iPhone Index, is bigger than Apple.  It's about an American consumer who can no longer make make room in the household budget for a new gadget, no matter how cool it is.  It's about an American consumer cutting back — and running scared.

The Daily Reckoning