Low Cost iPhone

  • Posted: 12 July 2011 10:04 PM

    I’m sure there was a thread that dealt with this subject, but I can’t find it, and I wanted to share a couple thoughts against such an iPhone.

    The first is the growth of smartphone use in the US (high probability its happening elsewhere as well).  Horace Dediu points out that subscribers are switching to smart phones at a constant rate (~510,000 subscribers per month), and have been for 17 quarters. This strongly suggests 50% smartphone use by summer 2012.

    http://tinyurl.com/Switching-Trend

    Additionally, Apple already has a low cost iPhone.  It is last year’s model for only $59 (subsidized).

    And finally, iPhone continues to gain share at current price points.

    Why would Apple introduce a still lower priced iPhone, with the inevitable decrease in gross margins, when they can’t make enough of the higher margin models?

    Signature

    You can’t do more, make more, be more, than the next guy, if you think like the next guy. Think different.

         
  • Avatar

    Posted: 12 July 2011 10:11 PM #1

    The margins are likely to be lower, I agree.

    Something would have to give:

    1. Apple gets a bigger cut of revenue ?
    2. Apple gets part ownership of some part of the teletubes ?
    3. The margins are in fact higher ?
    4. Apple covets the larger marketshare and is willing to take a hit ?

         
  • Avatar

    Posted: 12 July 2011 10:26 PM #2

    If theres something I enjoy more than the Apple TV Set debate, its the iPhone “Cheap”/Nano/Mini/Air debate. Low & behold I get my 2 favourite threads on the same day.

    First up - Apple has reached supply/demand balance on the iphone 4, so it is no longer in the situation where “they cant make enough”. Infact, almost every analyst of the AFB predicts that apple will produce/sell less iphones in Q3 results reported next week than they did in the previous quarter. If apple sells less phones this quater than last, but the overall smartphone market has grown, then by definition apple has actually lost marketshare.

    Secondly - I believe Horace deidu himself has made some posts recently which emphasize the huge market opportunity (mostly outside the US) that there currently is for unsubsidised phones on PAYG plans (which is the normal plan type in huge potential markets like china) - a market apple currently does not serve very well with their very high priced unsubsidised iphone model. Apple has only very recently changed its strategy, by re-introducing the iphone 3GS in India for $444 USD unsubsidised - a taste of things to come globally perhaps.

    Thirdly - Would it not be a benefit for apple to have 2 seperate manufacturing product lines that can be ramped up at 2 seperate times in the year with 2 seperate new product refreshs? next year apple should be at at least 25-30 million phones a quarter - it will be a huge, huge, huge undertaking to switch just one phone model per year and ramp up to producing that amount of phones per quarter without any disruption in supply (hats off to apple if they can manage it - they certainly couldn’t with the ipad 2 transition).

    Fourthly - The prime reason I hear for apple NOT to introduce a cheaper model is to protect margins on sales of the existing high margin model. Steve Jobs has said that was the one mistake apple did with the Mac in the 90s - when it should have gone for marketshare, the company instead went for profits, and almost went out of business because of it. If apple is able to introduce a cheaper model, double its unit sales but suffer a drop in ASP by $100-$200 I think thats a trade-off the apple of today will make.

    [ Edited: 12 July 2011 10:34 PM by Burgess ]

    Signature

    Full Disclosure:

    - Long Apple
    - Pro: Apple HDTV, iPhone Air, Stock split, Consumer robotics

         
  • Posted: 12 July 2011 11:50 PM #3

    The day Apple announces a pre-paid iPhone mini in 6 colors, place your AAPL buy orders and don’t look back. This is what WS is looking for. A replay of the iPod mini’s effect on the stock price.

    Adding China Mobile to a pre-paid iPhone mini would be like throwing gasoline on the fire that is current iPhone sales. The iPhone market with China Mobile is only like 120 million. But with a pre-paid iPhone mini the potential China Mobile market would be 600 million.

    China Mobile rumors is why AAPL rocketed up 25 points last week. Not earnings. Not anything else.

         
  • Avatar

    Posted: 13 July 2011 12:23 AM #4

    Here’s the most recent thread on this topic:
    http://www.macobserver.com/tmo/forums/viewthread/80973/

    Here’s the older 14 pager:
    http://www.macobserver.com/tmo/forums/viewthread/79983/

         
  • Avatar

    Posted: 13 July 2011 01:06 AM #5

    adamthompson3232 - 13 July 2011 03:56 AM

    Iosweekly, what don’t you understand? Demand for iPhone is likely at least double current supply. AT LEAST.

    Are you talking about theoretical demand in markets apple doesn’t yet have distribution channels (unannounced carrier deals etc)? Because that is a seperate issue.

    I’m talking about supply meeting demand in markets that apple currently operates in. by my observation apple has iphones in ample supply with 24 hours shipping or sitting on store shelves globally. Look at sales in the USA, If apple suddenly had an extra million iphones in its current US distribution channel, would it add a single extra unit sold? Can you not currently walk into any apple, AT&T or verizon store and walk out 5 minutes later with an iphone? isn’t that an obvious case of supply meeting demand? as opposed to the ipad 2 which still has a wait time if you wish to order one?

    I believe Tim Cook himself on the last earnings call said demand/supply was in balance for the first time ever.

    [ Edited: 13 July 2011 01:08 AM by Burgess ]

    Signature

    Full Disclosure:

    - Long Apple
    - Pro: Apple HDTV, iPhone Air, Stock split, Consumer robotics

         
  • Avatar

    Posted: 13 July 2011 01:21 AM #6

    adamthompson3232 - 13 July 2011 04:17 AM

    Until it’s on 400+ carriers I wouldn’t spend one second thinking about iPhone mini. Sorry but its the Dumbest idea discussed on this board.

    The fastest way to get the iphone onto 400+ carriers is in fact to offer it as an unlocked multiband device. Apple has been very slow to announce new carrier deals over the last couple years.

    Signature

    Full Disclosure:

    - Long Apple
    - Pro: Apple HDTV, iPhone Air, Stock split, Consumer robotics

         
  • Avatar

    Posted: 13 July 2011 01:33 AM #7

    Apple will not be offering a cheaper iPhone, but they will offer an unsubsidized iPod with front facing camera and 3G data only PAYG capability plus wi-fi, meant to connect users with the cloud.  The fact that many will utilize the device as a VoIP phone will be a coincidental, unadvertised side benefit, but a benefit that could catapult such a device in this price range to top seller status in China, India, Asia and even here in the US. Since it would not have a cellular radio, calls over a cellular network could not be made, and therefore it would not be a phone.  Since it is not a phone, it will not cannibalize iPhone sales.

    [ Edited: 13 July 2011 01:45 AM by zulu ]      
  • Avatar

    Posted: 13 July 2011 01:39 AM #8

    adamthompson3232 - 13 July 2011 04:22 AM

    Common business sense says apple should pick up all the low hanging fruit at the high end of the market before going down market. With the high end’s ceiling nowhere in sight apple still has a lot of production needed at the high end. If they can somehow double or triple current production and waste time on iPhone mini so be it but not before regular production is dramatically improved.

    I’m getting the impression that your disagreement with an iphone “cheap” is more of a timing issue then? your horified if its released this year, but are open to the idea a few years down the track?

    I can see your point, maybe April or September 2012 could be a better launch date, after the iphone 5 is ramped up and in more markets. But I think that any later than that will be too late for the 4 billion user+ Asian/latin-American markets which will have crossed the 50% smartphone penetration mark by then, and most of those handsets will likely be of a cheap prepay android variety, with very little post-paid iphones invovled.

    However you call it the stupidist idea on this board, and yet apple just relaunched the iphone 3GS in India for $444 USD - which is very close to the $399 mark I expected a new iphone Air to be introduced at - if apple is actually followign this model in one country - then its a bit harsh to suggest its a stupid idea.

    Signature

    Full Disclosure:

    - Long Apple
    - Pro: Apple HDTV, iPhone Air, Stock split, Consumer robotics

         
  • Avatar

    Posted: 13 July 2011 05:49 AM #9

    AT, I get the iPhone mini knee-jerking, but also on the table is an iPhone PAYG, which doesn’t need to be mini anything and could be derived from existing product lines without too much trouble. 

    No way an iPhone PAYG is a rebranded iPhone 4 or 3GS - that’s not creative at all, and Tim Cook has made no secret of Apple’s PAYG/prepaid market ambitions, or that they’re looking at more novel ways to go after this market.  Would there be anything wrong with an iPhone PAYG soon?

    Signature

    The Summer of AAPL is here.  Enjoy it (responsibly) while it lasts.
    AFB Night Owl Team™
    Thanks, Steve.

         
  • Posted: 13 July 2011 06:02 AM #10

    Feature by feature, developer by developer, carrier by carrier the iPhone is what’s possible now. There isn’t a more robust competitor available. The iPhone’s features drives the competition. When you lead with performance, stepping back with a scaled back features offering may get you more business short term but your name is now among the common and your target market, who put you on the map, looks for distinction elsewhere.

    It’s much more than gross revenue in 2012 that’s important to you in 2015.

    Thumbs down to a dumbed down iPhone. 

    It’s not a stupid idea, it’s just not well thought out.

    If you must have everyman’s phone start another company with another name and get on with it.

         
  • Avatar

    Posted: 13 July 2011 06:08 AM #11

    I’m lucky enough that postpaid service doesn’t bother me, and that my probable ability to get a decent price for my iPhones will help me roll into an iPhone 5 whenever the heck it comes out.

    But I find it very hard to believe that Steve Jobs and Co. will not implement their vision of the best “creative idea” for going after the prepaid market.  There’s just one thing.  No matter how creative you are, there are certain realities that will prevent you from positioning a flagship smartphone as a PAYG phone. 

    If an iPhone PAYG will come sometime in the future, it can’t be compared with the latest and greatest postpaid-oriented iPhone.  Nor will it be.  You can improve an “existing” product to get your iPhone PAYG without “scaling back” your best device - marketing message goes a long way.

    Signature

    The Summer of AAPL is here.  Enjoy it (responsibly) while it lasts.
    AFB Night Owl Team™
    Thanks, Steve.

         
  • Posted: 13 July 2011 06:19 AM #12

    It is the feature set after all. And the price. $ 85.00 as Horace says is the sweet spot on price. What features will you cut from the iPhone ecosystem to deliver a product to that market?

    Why would you?

         
  • Posted: 13 July 2011 12:20 PM #13

    zulu - 13 July 2011 04:33 AM

    Apple will not be offering a cheaper iPhone, but they will offer an unsubsidized iPod with front facing camera and 3G data only PAYG capability plus wi-fi, meant to connect users with the cloud.  The fact that many will utilize the device as a VoIP phone will be a coincidental, unadvertised side benefit, but a benefit that could catapult such a device in this price range to top seller status in China, India, Asia and even here in the US. Since it would not have a cellular radio, calls over a cellular network could not be made, and therefore it would not be a phone.  Since it is not a phone, it will not cannibalize iPhone sales.

    That’s an iPhone without the ability to make cell calls. Since the cost of the cell components is mostly in the 3G it would be monumentally stupid not to just go the whole hog and have a multi-band unlocked iPhone. Which when/if my iPod 3rd Gen gives up the ghost would be a quite attractive on PAYG for the data plan.

    At which point you being to wonder if terminating the iPod Touch line and bring on a lower cost PAYG iPhone Mini (call it a iPod Touch 3G if you wish) is actually a quite appealing option.

    I see a real split. People who want a PDA + Phone + wireless internet (called a Smartphone) and people who want a PDA/music player.  If the cost of the Phone component isn’t substantially more and not locked (by frequency limits) then the PDA/Music people will move up. If it is to much they’ll want another (cheaper) option that still fills that PDA/Music player role. I represent the PDA/Music player mindset. We have WiFi, mostly everywhere we go. Why pay extra for redundant components with a recurring monthly cost?

    If Apple cans the iPod Touch they’ll need an low end unlocked iPhone with PAYG to replace it.

    [ Edited: 13 July 2011 12:24 PM by Dorje Sylas ]      
  • Avatar

    Posted: 13 July 2011 12:33 PM #14

    AT, Your confusing me, on the one hand you say keep selling the 3GS which by definition is a different model and cheaper then the flagship.  If they continue to sell the 3GS then Apple has a $400 paygo phone now. What do they need to do to get to 300, accept lower margins or ride the price curve for the components or a combination.  I think the 3GS represents a low end pocket computer to lower the cost further, Apple would need to integrate the baseband components with the SOC, to date Apple has not gone this route, but with Intel buying Infineon, maybe they work a deal to build a lower cost phone for 2012.  With the added cost and size of the LTE chipset, I think Apple would be throwing away money by putting LTE in every handset when many countries don’t have a network to support, so IMO there will be a need for different models in 2012 so a low cost model with cheaper internals make sense sooner then later.

         
  • Avatar

    Posted: 13 July 2011 01:04 PM #15

    Dorje Sylas - 13 July 2011 03:20 PM
    zulu - 13 July 2011 04:33 AM

    Apple will not be offering a cheaper iPhone, but they will offer an unsubsidized iPod with front facing camera and 3G data only PAYG capability plus wi-fi, meant to connect users with the cloud.  The fact that many will utilize the device as a VoIP phone will be a coincidental, unadvertised side benefit, but a benefit that could catapult such a device in this price range to top seller status in China, India, Asia and even here in the US. Since it would not have a cellular radio, calls over a cellular network could not be made, and therefore it would not be a phone.  Since it is not a phone, it will not cannibalize iPhone sales.

    That’s an iPhone without the ability to make cell calls. Since the cost of the cell components is mostly in the 3G it would be monumentally stupid not to just go the whole hog and have a multi-band unlocked iPhone. Which when/if my iPod 3rd Gen gives up the ghost would be a quite attractive on PAYG for the data plan.

    At which point you being to wonder if terminating the iPod Touch line and bring on a lower cost PAYG iPhone Mini (call it a iPod Touch 3G if you wish) is actually a quite appealing option.

    I see a real split. People who want a PDA + Phone + wireless internet (called a Smartphone) and people who want a PDA/music player.  If the cost of the Phone component isn’t substantially more and not locked (by frequency limits) then the PDA/Music people will move up. If it is to much they’ll want another (cheaper) option that still fills that PDA/Music player role. I represent the PDA/Music player mindset. We have WiFi, mostly everywhere we go. Why pay extra for redundant components with a recurring monthly cost?

    If Apple cans the iPod Touch they’ll need an low end unlocked iPhone with PAYG to replace it.

    You may be right about the cost of of 3G data radio putting the price of any 3G capable iPod out of reach for the PDA/music crowd.  For the US market, where many can afford the subsidized iPhone, it would not make sense.  But for the emerging markets, a device that could get traction where an iPhone would be priced out of the market makes all the sense in the world.  As Tim Cook has pointed out Apple does not want the iPhone to be only for the rich.