Apple slashes iPhone price by $200

Apple has slashed $200 off the price of the 8GB iPhone but has softened the blow to the 1 million early adopters by offering full refunds or $100 Apple Store vouchers.

Apple chief executive Steve Jobs announced the surprise move in a press conference in San Francisco on Wednesday. The price cut has been styled as an offer 'for the holiday season' but was seen by some analysts as a bid to boost sales that has slowed after the initial launch hype faded.

The company's shares fell 5% in the wake of the announcement. 'My suspicion is that they got to 750,000 really quickly and then it started to slow down," one analyst told the New York Times.

The army of a million punters who paid top whack for the iPhone will now receive a $100 voucher to spend on Apple products or - if they bought an iPhone within 10 days of the price cut - a full refund.

Steve Jobs announced the refund scheme in an uncharacteristically apologetic open letter on the Apple website.

"We need to do a better job taking care of our early iPhone customers as we aggressively go after new ones with a lower price. Our early customers trusted us, and we must live up to that trust with our actions in moments like these," said Jobs.

As well as the 30% price cut, Jobs also revealed that the 4GB model was being dropped and the launch of new touch-screen iPods which feature the same interface as the iPhone.

The iPod Touch comes in 8GB and 16GB varieties and is essentially a slightly slimmer and smaller version of the iPhone - but without the phone functionality.

The Touch has the same 'multi-touch' buttonless interface as the iPhone as well as offering WiFi connectivity, Safari web browsing, music and video playback and the YouTube video application. Missing from the iPod Touch feature list are the Mail application and Google Maps.

The new iPods cost £199 for the 8GB model and £269 for the 16GB version. They go on sale in the UK on September 28 - the same date that many expect the iPhone to make its British debut.