iMac Price Hike is U-Turn for Apple

Apple Computer Inc.’s
history of slashing prices to keep up with lagging PC sales
took a sudden U-turn Thursday when the company announced it would jack up
the prices on all of its new iMac desktop computer models by $100.

The Cupertino, Calif.-based Apple, said significant increases in component
costs for memory and LCD flat-panel displays were to be blamed for the price
hike decision. Effective immediately, Apple said the new suggested retail
price for all three new iMac models will be $1,399 for the 700 MHz G4 with
CD-RW drive; $1,599 (US) for the 700 MHz G4 with Combo drive; and $1,899
(US) for
the 800 MHz G4 with SuperDrive.

Apple said it would honor all existing reseller orders and Apple online
store orders as at the original pricing of $1,299 (US) for the 700 MHz G4
with CD-RW drive; $1,499 (US) for the 700 MHz G4 with Combo drive; and
$1,799 (US) for the 800 MHz G4 with SuperDrive respectively.

It is a dramatic turnaround for Apple, a company known for implementing huge
price cuts and offering hefty rebates to help spur consumer interest in its
high-end products. Last January, in a bid to clear excess inventory, Apple
cut prices on some Macintosh computers by as much as $1,100.

Apple VP of worldwide product development Phil Shiller said the $100 price
hike was directly attributed to the rising costs of memory chips and
flat panel LCD screens.

“Rapidly increasing component costs is an industry-wide issue right now.
Since the new iMac’s launch in January, memory costs have tripled and
flat-panel costs have increased twenty-five percent, with little relief in
sight,” Schiller said.

“Some manufacturers are de-configuring their models in response to these
costs-reducing memory and disk drive capacity, for example. We’ve chosen to
raise prices by $100 and stick with our three fully-configured new iMac

While Apple boasted of shipping more than 125,000 of the sleek new iMac since January at a rate of 5,000 per day, analysts didn’t exactly applaud the price increase move.

Pointing to the rarity of a price increase in the PC sector, JP Morgan analyst Daniel Kunstler said Apple’s profitability on the new machines “may have come close to evaporating in the quarter.”

“While it is a good thing that Apple is taking steps to protect its margins, we believe that Apple did this very reluctantly as rising prices are a rarity in the PC industry,” Kunstler said in a research note to investors.

Kunstler lowered his second quarter profit forecast by a few pennies (from 11 cents per share to 9 cents a share) and cut his revenue projection to $1.35 billion, down from 1.45 billion.

The announcement came as Apple’s technology took center stage in Tokyo,
Japan at the annual MacWorld trade show where the company announced the
release of a new iPOD MP3 player, with 10 gigabytes of memory, doubling the
capacity of the current model. The $499 price tag for the new iPOD is $100
more than the existing model.

The new iPOD is the first MP3 device to pack 2,000 songs and has a 10-hour battery.
The upgrade also includes a ‘Contacts’ feature that lets the user view names
and addresses downloaded from applications like Microsoft Entourage, Palm
Desktop and Mac OS X Address Book.

Apple also began hyping its Bluetooth technology for the Mac operating
system. The company said it would make a preview version of its Bluetooth
software for Mac OS X available as a free software download and is offering
a Bluetooth USB adaptor, which can Bluetooth-enable any USB-based Macintosh
computer, for $49.

Apple said its Bluetooth software would lets customers wirelessly share
files between Macs; synchronize and share contact information with Palm-OS
based PDAs, including models from Sony and Palm; and access the Web through
Bluetooth-enabled cell phones, including models from Nokia, Ericsson and

The company also unveiled a new flat-panel monitor called the Cinema HD
screen, a 23-inch flat screen that supports a 1920-by-1200-pixel resolution.
Pricing for the new monitor is set at $3,499.

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