Apple Could Launch $200 iPhone for Emerging Markets

| Rumor

The iPhone Crystal BallApple's share of the smartphone market in emerging markets could get a boost in the future from a cheaper iPhone, according to Piper Jaffray analyst Gene Munster. In a presentation called "The Future of Apple," Mr. Munster told the IGNITION conference that Apple might turn to a cheaper iPhone to grow its share of this price-sensitive segment of the market in 2014.

Apple's share of China, for instance, stands at about 4 percent, well below the 20-30 percent share Apple enjoys in the rest of the world, let alone the 48.1 percent Apple share had in the U.S. in October. iPhone share in India is even lower, and the company's presence in Brazil is also limited.

This is due in part to the reality that Apple competes at the high end of the market, where all the profits typically reside. The current generation of iPhone has an unsubsidized price starting at $699 in the U.S., a price that is even higher in some markets due to tariffs, VAT taxes, and other factors.

Emerging markets are, by definition, price sensitive, and many of those markets differ from the U.S. and Europe in that carriers don't subsidize new handset sales. That puts the iPhone out of range for most consumers in those markets, limiting Apple's appeal.

Mr. Munster believes that Apple could be willing to change that by offering an iPhone with a $200 list price, a device with margins closer to those of the iPad or Apple's Mac, rather than the iPhone we know today. If it did so, Mr. Munster said that Apple could capture a full 30 percent of the global market.

Piper Jaffray Slide

Piper Jaffray Slide

Timing

Other tidbits from Mr. Munster's presentation include the prediction that Apple could switch to a faster, 6-month release cycle for iPhone by 2015. Under that scenario, Apple would release its "S" iPhone updates in March, keeping the late fall schedule for the full version number upgrades.

The analyst said that Apple needs to do this to keep up with the more aggressive release cycles of Apple's competitors, saying, "one iPhone launch per year may not be enough."

2013

Mr. Munster repeated his belief that Apple will release an Apple TV of some sort in the fall of 2013, as well as an iPhone 5S. That device will have NFC, an Apple A7 processor, more storage, and a better camera. We'll also see a thinner iPad and new iPad mini.

$AAPL

Mr. Munster has a "Buy" rating on shares of $AAPL and a price target of $910 per share. The stock traded lower on Wednesday, and as of this writing $AAPL was at $583.582, down $1.198 (-0.20 percent), on light volume.

*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.

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3 Comments

iJack

Well, Munster (and by extension, Bryan) told us the why-they-should, but not how they could build a $200 iPhone.  and if they were successful, wouldn’t the domestic market demand it also?

The answer is, of course it would and if Apple didn’t provide it quickly, a gray market would naturally spring up, over which Apple would have no control.

Bryan Chaffin

Oh, I’m not at all sure Apple should address this market. It would give the company market share with little or no increase in profits, lowering gross margins in the process.

On top of that, the low end of the market tend to have higher support costs.

Mr. Munster stipulated it would be a quality device with margins similar to iPad, but I don’t think Apple can achieve both goals. To me, Apple would be better served by continuing to repurpose prior generations of its iPhones for the entry level market.

For instance, offering a 4GB iPhone 4 for $200ish when it releases the iPhone 5S or even 6. If Apple could do that profitably, it would be more compelling to me.

Maybe that wouldn’t work, though. Maybe Apple has to have new device built from the ground up to be less expensive.

Lastly, remember that Mr. Munster could have gotten wind of such a product that Apple is testing. The company has a ton of things it builds and tests without actually releasing.

My two cents…

iJack

I agree that repurposing older models has some merit, Byran.  If they sold them in those markets for $200, and continued to offer them here for say, $250, folks here would probably pay the extra $50, rather than go the gray market route.

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