iPhone to keep punching revenue above its weight class

While Android and Windows Phone smartphone ASPs are expected to drop through 2018, IDC bets Apple sticks to the premium plan

Apple's iPhone may continue to shed global smartphone shipment share in the next five years, but its portion of total revenue will stay stable because Apple will resist slashing iPhone prices, a research analyst said today.

Apple will buck the general trend of the next half-decade, said Ramon Llamas of IDC, and decline to follow Android and Windows Phone rivals who will keep racing to the pricing cellar.

"Most customers have said loud and clear that they want low-cost smartphones year-in, year-out," said Llamas Monday. "Take a look at where Android has been making hay. It's more and more in the low end of the market. A third of the market last year, some 300 to 350 million smartphones, were priced under $150."

IDC concluded that the trend will continue through 2018, the furthest out it was willing to forecast.

The ASP, or "average selling price," of an Android-powered smartphone will drop by 15%, from this year's $254 to $215, in five years. Windows Phone handsets will drop by an even larger 19% in the same period, from $265 this year to $214 in 2018, as Redmond and its partners play catch-up and try to move product by cutting prices.

But Apple won't play that game. IDC has estimated an iPhone ASP decline of just 8% over the next five years, from 2014's $657 to 2018's $604.

Some analysts, especially those from Wall Street whose jobs are to spark stock trades, have been beating the Apple-must-lower-prices drum for years. That pounding reached an all-time volume last fall before the launch of the iPhone 5C as experts assumed Apple would cut prices to compete in developing markets, notably China.

Apple proved them less-than-prescient, and although it did sell the iPhone 5C at a lower price than its iPhone 5S flagship, the difference between the two was nowhere near what Wall Street had expected, or hoped.

Cupertino will continue to position the iPhone as the premium-priced smartphone, IDC implicitly said with its forecast.

If the firm's predictions are accurate -- no guarantee there -- it's not hard to see why: Even with the decline in ASP, Apple's iPhone revenue will climb by 24% in the next five years to $149.4 billion thanks to a 34% increase in shipments. The result? Apple's share of all smartphone revenue will remain at 31%.

Android handset makers won't be able to say that, not collectively. Even with a 41% growth in Android smartphone shipments by 2018 -- resulting in a 19% boost in total revenue -- Android's share of all revenue will slip from 65% to 62.5% in the next five years.

That's a run-to-stay-in-place model.

Android's loss will be Windows Phone's gain, IDC predicted: The Microsoft OS's share of all smartphone revenue will jump from this year's 3% to 2018's 5%, totaling $24.7 billion by the latter.

Among the assumptions in IDC's prognostication was that carriers, notably those in the U.S., would continue to heavily subsidize the iPhone, effectively reducing consumers' out-of-pocket expense and maintaining high shipment volumes.

"Carriers don't want to shut off that [iPhone] faucet," Llamas argued. "But they will become more and more selective on how much they spend for those subsidies."

If Apple holds the price line, it has a good chance of keeping a grip on a third of all smartphone revenue, perhaps even growing that share, as Android and Windows Phone smartphone prices continue to drop.

Llamas didn't know when prices would reach rock bottom, a place where paper-thin margins prevented additional price cuts for manufacturers who could not monetize the hardware through secondary revenue streams like services, but he was confident that that point was outside IDC's five-year crystal ball.

"It's beyond our forecast horizon," Llamas asserted. "There's still room for some spectacular growth, something that will require prices to come down even more."

Not required for Apple, apparently.

Smartphone price chart
iPhone ASPs will drop a measly 8% in the next five years, leaving it with nearly a third of total smartphone revenue even as share of shipments dips. (Data: IDC.)

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at  @gkeizer, on Google+ or subscribe to Gregg's RSS feed . His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

Copyright © 2014 IDG Communications, Inc.

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