Apple to expand, recast iPhone portfolio today

Analysts parse the likely smartphone line-up Apple will unveil at 1 p.m. ET

Apple will restructure its 2014-15 iPhone portfolio today, analysts said, by dumping the iPhone 5C experiment but keeping the three-year-old iPhone 4S to sell at even lower prices in markets such as India.

"Apple will take the iPhone 5S and drop it into the iPhone 5C price range, or below," said Ben Bajarin of Creative Strategies in a Monday interview. "I wouldn't be shocked if the 5C disappears. The question is, what happens to the 4S? It should not go away. It's doing quite well in India, and starting to get traction there."

Until last year, Apple's annual line-up was simple to figure out: When it released a new iPhone -- say, the iPhone 5 in 2012 -- it dropped the price of the previous model, call it "n-1" where "n" is the newest, by $100 and then shifted the model that had been "n-1" to "n-2," which was priced another $100 lower.

Where subsidies are commonplace, as in the U.S., that meant a 16GB iPhone "n" cost $199 with a two-year contract, while an iPhone "n-1" cost $99 and an iPhone "n-2" was free.

In 2013, however, Apple changed that practice: It rolled out two new iPhones, the 5S and 5C, with the latter priced $100 less than the former. Apple dropped the previous year's model, the iPhone 5, from the line-up entirely but retained the iPhone 4S -- in the formula, "n-2" -- to sell at the lowest price of the portfolio.

With a repeat of last year in the offing -- virtually everyone expects two new iPhones today -- Apple will again modify the line-up.

Bajarin's take was that Apple would have a four-iPhone cast: iPhone 6, the new 4.7-in. iPhone to replace the iPhone 5S as the standard bearer; the larger, premium-priced 5.5-in. iPhone; the iPhone 5S; and the aged iPhone 4S.

Call that portfolio "n+1" (5.5-in. iPhone), "n" (iPhone 6), "n-1" (iPhone 5S) and "n-3" (iPhone 4S).

"The question is, what happens to the iPhone 5S and 5C? Will it be plastic again?" asked Jan Dawson, chief analyst at Jackdaw Research, referring to 2013's iPhone 5C, essentially an iPhone 5 stuck in a plastic body. In a video shown at the September 2013 launch of the 5C, Jony Ive, Apple's top designer, called it "unapologetically plastic."

"[The iPhone 5C] meant what you could get a brand new device, one with a different design [at a lower price]," Dawson added. "It was one of the ways Apple kept sales up the last couple of quarters and it did best in Europe and North America. So it's useful for them to keep a device like that in the market.

"We may end up seeing a similar idea this year, with the 5S in a new casing," Dawson said.

Bajarin and Dawson believed that the larger 5.5-in iPhone -- variously claimed to be called "iPhone 6 Air," "iPhone 6 Plus" or "iPhone 6 Pro" -- would have a higher price than the usual flagship: $749 without a contract or $299 with a two-year commitment. That would leave room under the price umbrella for the stock iPhone 6 ($649/$199), a recast iPhone 5S ($549/$99) and something even lower, like the iPhone 4S ($449/free).

But Carolina Milanesi, chief of research and head of U.S. business for Kantar WorldPanel Comtech, disagreed. "It makes sense for the 4S to go away," said Milanesi, who pointed out that while Apple promises that iOS 8 will run on an iPhone 4S, the experience would be better on a 5C.

She had a point: Owners of the oldest models able to run a particular edition of iOS regularly complain about performance problems with the newest version.

"And I don't know how much more they can push the price," Milanesi continued, now referring to the top-of-the-line 5.5-in. iPhone.

Her arguments for an even lower-priced bottom tier and her reluctance to see how Apple could charge $749 for its top tier stemmed from her view of the market. "If they have something at $299," she said, bringing back memories of last year's pre-launch debate of, for Apple, a very cheap iPhone, "that's a pretty decent price without a contract. That would really address the Chinese market."

And as for a higher-priced iPhone 6 "Air/Plus/Pro," she pointed out that $749 was within shouting distance of an 11-in MacBook Air laptop, which lists for $899.

Continuing to sell older models has an added advantage for Apple besides the obvious price points, argued Bajarin. Apple has spent huge chunks of money to tool up for a specific model: Letting that tooling disappear after a year's run would be wasteful.

"There's so much custom tooling to gear up to sell 70, 80, 100 million [iPhones]," said Bajarin. Apple can reap more from the investment by continuing to push older model production to second-tier Asian manufacturers -- he cited Taiwan-based Pegatron as an example -- for the likes of the iPhone 4S and 5S. "It makes sense to still be aggressively producing that device [the iPhone 4S]."

None of the analysts thought that an additional iPhone SKU (stock keeping unit) -- a specific model made and sold -- would be a problem for Apple, which has long sold three iPhones. A fourth won't break the company's operational back by any means.

Many of the models share at least some internal components, said Dawson. "Apple doesn't do any single SKU in any of their other lines, so I don't think it's a problem," Dawson said. "And compared to a company like Samsung, [even four models] is still incredibly focused."

The conversations with the analysts may not have come up with a consensus, but they did illustrate the greater number of options Apple has this year than last, a fact that contributed to the experts' discord.

In turn, that may mean Apple has a chance to sell more iPhones -- of various configurations -- in this year's last three months than in any previous quarter. Even though Bajarin isn't a financial analyst, the kind who regularly forecast quarterly unit sales of Apple's hardware, he ventured the figure of 60 million as within reason. If Apple did sell that many smartphones, it will have grown sales by nearly 18% over the same period in 2013.

Apple will reveal its iPhone line-up later today at the Flint Center for the Performing Arts on the campus of De Anza College in Cupertino, Calif. The venue is important, as it was there that co-founder Steve Jobs pulled the new Macintosh out of a tote bag 30 years ago, then in 1998 rejuvenated Apple's personal computer when he presented the first iMac.

Apple will kick off the presentation at 10 a.m. PT (1 p.m. ET), and for the first time for an iPhone roll-out, will webcast the event live. The broadcast will play on Apple's website.

Currently, Apple is redirecting all traffic from the home page of its domain to the webcast's location, another strong signal that the company will not only unveil new more iPhones than usual, but will also show off its long-awaited wearable line.


Copyright © 2014 IDG Communications, Inc.

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