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Cheaper iPhone 4? Routine for Apple, says analyst

'Totally expected' that Apple will drop price of current iPhone when it launches next model

August 23, 2011 03:45 PM ET

Computerworld - Talk of a lower-priced iPhone 4 sweeping news outlets and Apple blogs today isn't exactly a shock, an analyst said today.

"Totally expected," said Ezra Gottheil, an analyst with Technology Business Research, of the news -- first reported by Reuters Tuesday -- that Apple will launch a "lower-priced" version of the iPhone 4 "within weeks."

That Apple will downshift the iPhone 4 to a lower price point when it introduces the next-generation model, and slash its storage space from the current minimum of 16GB fits its practice, said Gottheil, pointing to the company's history.

When Apple debuted the iPhone 4 last summer, it did exactly the same with the previous year's smartphone, the iPhone 3GS. Then, Apple dropped the price of the 2009 model to $99 from $199 as it halved memory from 16GB to 8GB.

And the company did almost the same thing the year before. With the introduction of the iPhone 3GS in June 2009, Apple kept selling the previous year's low-end 8GB iPhone 3G, cutting the price to $99.

The 8GB iPhone 3GS now sells for $49; Apple and AT&T cut the price from $99 in January 2011.

Rumors of a specially-designed cheaper iPhone regularly surface, but have never panned out: Instead, Apple has simply dropped the price of last year's smartphone.

"Apple seems to be able to have it both ways," said Gottheil. "On one hand, it doesn't want to cheapen the brand and scare away people who will pay for the newest model. But on the other hand, it wants the breadth of distribution that a lower-priced iPhone provides."

The strategy of selling the newest iPhone at full price and last year's smartphone at a discount has worked, said Gottheil, who argued that there's no reason why Apple would change that practice.

"The iPhone's average selling price shows no downward trend," said Gottheil. "It's still north of $600. That means there's no substantial drop in the subsidy it's collecting from carriers for the lower-priced iPhones."

According to Apple's most recent quarterly earnings statement, each iPhone sold produced an average of $655 in revenue, down just $9 from the $664 average per iPhone sold of the previous quarter.

In other words, Apple's making about the same amount for its older-generation iPhones -- during the second half of 2010 and so far this year, on the iPhone 3GS -- that it earns from sales of its newest model, the iPhone 4.

"That's good news for Apple because they get to broaden the market," said Gottheil. "For people who wouldn't pay $200 for a new phone, now they have you as a customer [when you pay $99 or $49]."



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