Apple's hefty iPhone price cut pits it in direct competition with handsets from Motorola and Palm, which are struggling to convince Wall Street they can turn around their aging brands.
With the music-playing iPhone now selling at $399 instead of $599, its price tag is much closer to those of other smart phones in the U.S. market, including Palm's Treo and Motorola's Razr2.
"This is Palm's main market," said Deutsche Bank analyst Brian Modoff, who does not see Apple's move as having as big an impact on Nokia and other handset makers.
Palm, which is entirely dependent on the smart phone market, sold 2.7 million phones in its last fiscal year ended in June.
The Treo, often used by business clients for e-mail and Web surfing, sells for up to $399 at Verizon Wireless, or $199 at Sprint Nextel to customers who sign a contract.
Palm said in June it expected the touch-screen iPhone to temporarily slow Treo demand, and Oppenheimer analyst Lawrence Harris said Apple's price cut could exacerbate this.
"It has the potential to take away from Treo sales," Harris said, adding that the move could make the low end of the handset market increasingly important for Palm.
"I think that's why you're going to see additional emphasis on cheaper models like the Centro," he said, referring to a phone Palm is expected to release in coming weeks for $99.