Apple faces tough choice on cheaper iPhone
Samsung sold more than twice as many smartphones as did Apple in the third quarter.
Gold argued that Apple needs lower-priced new smartphones to stay competitive, to protect its decreasing share of the smartphone market, and to sustain its high rate of both sales and revenue growth.
"Apple needs to be more competitive with [rivals'] low-cost devices, particularly in emerging markets," Gold said. "They haven't done nearly as well from a market share perspective in emerging markets."
Apple and other smartphone makers have been able to keep out-of-pocket prices relatively low -- the iPhone 5 starts at $199 -- by convincing mobile carriers to heavily subsidize the hardware. A non-subsidized iPhone 5, for example, costs $649.
Neither Gold or Gottheil believed that large subsidies are sustainable over the long run, another reason why a less-expensive iPhone is not only smart, but eventually a necessity.
The subsidy wall already has one crack: In the U.S., T-Mobile plans to start selling the iPhone this year, but will not subsidize the phone. Instead, T-Mobile will tempt buyers with no-contract, unlimited data plans. A less-expensive iPhone would make T-Mobile's job that much easier.
Gottheil's biggest objection to a quick appearance of a low-priced iPhone didn't stem from a vastly different read of the landscape, but because he doesn't believe Apple could crank out more phones than it does now.
"I think Apple does want to have a larger share of the smartphone market," Gottheil said. "They don't want to be a specialized niche player. That almost killed them in personal computers. But I don't think they're ready to [introduce low-priced iPhones] now. They would have to have an entirely new supply chain with higher capacity."
Apple only recently managed to reach a balance between supply and demand for the iPhone 5, which went on sale in late September. Gottheil reasoned that a lower-priced iPhone, whose success would rely in large part on volume sales, would be beyond Apple's current production capacity.
Bloomberg said its source had pegged the retail price of a cheaper iPhone at between $99 and $149, but analysts dismissed that range as too low.
Brian Marshall, a Wall Street analyst with ISI, said Apple would be much more likely to price a new iPhone for emerging markets at an average sales price (ASP) of $300. "Basically half of current iPhone ASP," said Marshall. "The key is maintaining 40-45% gross margin, versus 50-55% gross margin on the iPhone 5."
Gottheil named the same $300 price point, but Gold figured if Apple went in for a penny, it would for a pound. "They have to hit all the price points," Gold said, noting three ranges: under $100, between $100 and $250, and above $250. "They could reduce the [manufacturing cost] by using a small display with lower resolution and lower memory," Gold added. "But there would be compromises."
- Apple will 'set the world on fire' with iPhone 6 sales
- The other Apple economy: $2B in devices on eBay
- Apple sends users scrambling for OS X Yosemite
- Apple grows Mac sales by 18% on the back of the MacBook Air
- What to listen for during Apple's earnings call today
- Timeline: How Apple's iOS gained enterprise cred
- Apple and IBM: A winning combo for IT
- IBM and Apple ties go way back
- Apple quickly counters China claim of iPhone spying
- China calls the iPhone and iOS 7 threats to national security
- Tips for Driving User Adoption in New Technology Deployment Read this checklist on tips for driving user adoption to see where you stand.
- Pivotal Melds Big Data and Platform-as-a-service The value of Information has increased, so has the business's thirst for more information. Access to data and collaboration are at the heart...
- Operationalizing the Buzz: Big Data 2013 The 2013 EMA/9sight Big Data research surveyed 259 business and technology stakeholders around the world.
- The Pivotal Big Data Suite- Reducing the Risks of Big Data The explosion of big data and the rapid evolution of big data tools and technologies is challenging IT to meet the demands of...
- Keep Servers Up and Running and Attackers in the Dark An SSL/TLS handshake requires at least 10 times more processing power on a server than on the client. SSL renegotiation attacks can readily...
- On Demand: Mastering the Art of Mobile Content Management Mobile device usage in the enterprise has skyrocketed, and it continues to escalate. IT must answer to users who demand access to their... All Smartphones White Papers | Webcasts