Pegatron Chief Talks Openly about Low-Cost iPhone, Disputes ‘Cheap’ Label

| Analysis

Pegatron chairman T.H. Tung has been openly discussing the new low-cost iPhone his company is building for Apple. In a shareholder meeting, Mr. Tung said that the cost of the device will be "quite high," and that it shouldn't be considered cheap.

This would appear to violate the first rule of Apple Supply Club: Don't talk about Apple Supply. It remains to be seen how Apple will react to the news that the head of a manufacturer not only spilled the beans on an unannounced product, but then arranged the beans in such a way as to give us a better idea of just what Apple is planning.

Ix-nay on the eap-chay!

Background

At the heart of the story is the idea that Apple is making a less expensive iPhone intended to help the company gain share in emerging markets, especially the BRIC nations of Brazil, Russia, India, and China. Apple has used older models to address the entry level and middle tier markets in the developed world, but that strategy hasn't been as successful in the BRIC nations.

Rumors began circulating earlier this year that Apple was developing a device for this market, and it was often referred to as a "low-cost iPhone." Several well-connected analysts have said it was coming, and then reports to the same effect started leaking from Apple's supply chain to outlets like DigiTimes and other rumor sites.

In May, The Wall Street Journal went further, reporting that Apple had tapped Pegatron, a competitor to Apple's main manufacturer Foxconn, to build much of the low-cost iPhone. On Thursday, Pegatron's chairman took it the last few inches across the line into "this is gonna happen" territory.

What's It Mean

So what does he mean by the price is going to be "quite high?" According to China Times (Google Translation) (via Macotakora (Google Translation) via AppleInsider), Mr. Tung discussed the device he was building for Apple by comparing it to feature phones.

As we translate the translations, his point is that feature phones are cheap, whereas smartphones are awesome computers you carry in your pocket. Apple's device won't be priced like a cheap feature phone, and compared to those devices it will therefore not be cheap.

To long-term Apple watchers, there's not much new in these pricing revelations. Anyone expecting Apple to release a $25 or $50 iPhone should lay off the ganja for a while because they are just too high.

Apple isn't trying to elbow its way into the no-profit, high support cost end of the market, but rather the still lucrative middle end of the market, and it needs a less expensive, but still "new" model to do so in the emerging world.

Put another way, Mr. Tung's message wasn't intended for Western Apple fan ears, but rather for his shareholders' ears. Cheap and low-cost are relative terms, and Mr. Tung wanted his shareholders to know that he is building something for Apple with enough meat on the bones to fatten up his corporate coffers.

Pegawho?

What's really news here is that Mr. Tung spilled the beans, as noted above. The company just recently started working with Apple again as Apple looked to expand its manufacturers beyond Foxconn. Pegatron has done work for Apple before, but this is the biggest betrayal of Apple Supply Club rules we can recall.

Oh, to be a fly on the wall in one of their offices the next time Apple CEO Tim Cook has a chit chat with Mr. Tung.

Comments

mhikl

Or Messieurs Tongue & Cook had an understanding.

Dang that iPad spell corrector.

Bryan Chaffin

mhikl, that’s awesome. smile

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