Apple (Nasdaq:AAPL) unleashed its new version of the iPhone to much fanfare and flag waving on Monday June 9. There was neither a dry nor capital "I" to be found at the event. The much-hyped update comes complete with some new capabilities and a lower price tag. Apple has continued to perform well as consumers snatch up tech gadgets, but if the economic landscape continues to worsen, I'm not sure the low price tag will do enough to keep up sales. (For more on a company's ability to handle competition, see Competitive Advantage Counts.)

Price is Key

The new iPhone will support 3G networks and have faster internet speeds, and the new iPhone will have embedded GPS capability, but one of the biggest selling points on the new model will be its lower price. The 8 GB version of the iPhone will now sell for $199, half the price of the original. The tag line on the products web page is: Twice as fast. Half the price.

I think that this will be the best formula to push iPhones off the shelves. The pricing point here makes the iPhone more accessible and will likely make it a bigger player in the smartphone market, possibly posing more competition to Research In Motion's (Nasdaq:RIMM) Blackberry, which so far has not been bothered much by iPhone.

The price change also comes at the right time. While consumers have not yet shrugged off high priced tech products, if the economy worsens that trend can shift quickly. Cutting the price will help combat this.

Is it enough?
That being said, the stock has been very resilient in a bear market. With this new iPhone release be enough to keep it up? Apple never fails to create a huge buzz with its offerings, and the last few have been massively successful. However, The stock already trades at a premium. To be fair so does RIM.

Both have been successful despite economic concerns, but I think it may be harder to generate the big sales over the next year if some of the lower economic forecasts are correct. The premiums on the stock will hold up if sales do, but the risk of a small miss in sales will lead to a big price drop in the shares. (For more on how to invest with pessimistic sentiment in the market, check out Surviving Bear Country and Bear-Proof Your Retirement Portfolio.)

Another problem the iPhone has is that it is still contractually tied to AT&T (NYSE:T), which limits its consumer base. It has still competed well in the smartphone market, but has not put a dent in RIM which has a broader consumer base. Apple will also face some new competition with its other innovative products. Hewlett Packard (NYSE:HPQ) announced it will launch a product called the Voodoo Envy which is a direct shot at the MacBook Air. All in all, I think the company is great at its core with fantastic products, but the stock has considerable down side risk if the tech consumer drops off even slightly.

The Bottom Line
The new iPhone from Apple has caused a buzz, but not as much as its predecessor and sister products. The company has held up well through a slowing economy, but the current premium on the stock leaves it open to a lot of downside risk if the economy sours further. I think the risk is too great to recommend the shares at this time.

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Tickers in this Article: AAPL, RIMM, T, HPQ

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