Most of Wall Street has been scared off by Apple’s iPhone price cut, assuming the move means that the JesusPhone is underperforming: AAPL shares are down 6.25% since Steve Jobs kicked off his presentation yesterday.
But Citigroup analyst Richard Gardner defends the cuts in a report today with straightforward logic: A $400 iPhone will sell better than a $600 iPhone, he argues. And Apple’s deferred-revenue accounting method for the iPhone will cushion the blow — because revenue from each iPhone sale is recorded over 24 months, this won’t have an impact on short-term financials.
We think that Gardner is treating Jobs’ move too lightly: While Apple is famous for quickly replacing best-selling products with new, cheaper models, this wasn’t the case here. Apple isn’t replacing the iPhone with a new, improved iPhone — it’s just cutting prices. That should indeed be worrying for Apple-watchers.