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Apple faces tough choice on cheaper iPhone

Rumors of new model may be more than just smoke this time, argues one analyst

January 10, 2013 01:08 PM ET

Computerworld - Zombie-like in its persistence, talk of a cheaper iPhone again shuffled into view this week, with sources as varied as the spotty DigiTimes to the more mainstream Wall Street Journal and Bloomberg claiming Apple will enter the low-price fray this year.

Such a move would be a major strategic shift for the company, and put at risk its biggest money maker: During the last reported quarter, the iPhone accounted for 48% of the company's total revenue.

Some analysts weren't biting on the new speculation, perhaps remembering, "Fool me twice, shame on me," while others believed that the smartphone market is different enough today that Apple has to be thinking of going low.

"This will eventually happen, but only when Apple feels that it's the right time and that it is able to do it," said Ezra Gottheil of Technology Business Research. "But not this year. I don't think they're ready for it now."

Jack Gold, principal analyst at J. Gold Associates, disagreed. "Things are very different today. Samsung, for one, is kicking butt right now," said Gold. "Apple's share is decreasing, and they need to counter some of Samsung's momentum."

The latest round of speculation began Tuesday when DigiTimes, an Asian publication with an iffy record of accurate predictions, said supply sources claimed Apple would release a lower-priced iPhone for emerging markets in the second half of 2013. On Wednesday, the Wall Street Journal and Bloomberg, both citing unnamed sources, chimed in with similar accounts.

This week's speculation was in the same vein as earlier reports, which have circulated almost from the moment Apple introduced the iPhone in 2007 at prices starting at $599.

Accepting the new rumors at face value relies on certain assumptions about the notoriously-secretive Apple, its strategy, the increasingly saturated smartphone market and the subsidy model that keeps prices to consumers low.

"Once you have the high tier covered, how do you go after the mid or low tiers?" asked Gold. "They need to have something at lower price points."

Samsung, the Korean electronics giant which now dominates the Android smartphone market, is, in analysts' minds, Apple's biggest rival. And Samsung, as Gold pointed out, "has phones for almost everyone and every market, at all kinds of prices, from $49 to hundreds."

Meanwhile, Apple has relied on just one new main model each year, then bolstered its offerings by continuing to sell previous generations at a discount. "That helps," said Gold of the older models' lower prices, "but they're old, and not up to Android phones at the same price points."

In 2012's third quarter, Apple accounted for 15% of all smartphone shipments, up slightly from 13.3% in the same period the year before, according to IDC. Samsung's share, meanwhile, jumped to 31.3% from 22.7%.

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