Why a cheaper iPhone model makes economic sense; next-gen iPhone, budget model may both sport 4-inch screens

“The iPhone 5 hasn’t even been out for a full four months and the iPhone rumors are already rolling in at full throttle,” Yoni Heisler writes for Network World. “But lately, the word from the rumor mill hasn’t been focused on the iPhone 5S or the like, but rather on reports that Apple may release a lower-priced iPhone to make inroads in emerging markets.”

“Initially, I was inclined to take these reports with a grain of salt. After all, rumors of a cheaper iPhone model have been permeating through the blogosphere for years now. But then I came across a tweet from Jeremy Horwitz of iLounge, a man with nearly unmatched credentials when it comes to Apple rumors and news. Indeed, I can say quite confidently that no site/person has been more accurate in such a regard than Horwitz has been over the past few years,” Heisler writes. “That said, Horwitz tweeted the following on Tuesday: ‘What we heard (still early) re: new budget iPhone model – not a ‘larger’ 5-inch screen, but rather unified 4-inch screens for 5S/5/new budget model.'”

Heisler writes, “And the more I thought about it, the more the economic calculus started to make sense.”

Read more in the full article here.

Related articles:
Low cost iPhone? Apple has no problem cannibalizing its own business, typically with good results – January 9, 2013
Cheaper iPhone could boost Apple’s market share but ding margins – January 9, 2013
Gene Munster: 60-70% chance Apple debuts $199 iPhone for emerging markets – January 9, 2013
Bloomberg: Apple developing cheaper, smaller iPhone for 2013 holiday release – January 9, 2013
WSJ: Apple prepping less-expensive iPhone – January 8, 2013
Apple to launch low-cost iPhone with 5-inch display for emerging markets in 2H13, sources say – January 8, 2013
Barclays: Cheaper iPhone for emerging markets ‘key’ for Apple – December 4, 2012

20 Comments

    1. Why, in 12 years of daily analysis and investing in AAPL, have I never heard of Jeremy Horwitz of iLounge? This rumor calls for accepting the idea that Apple is planning to act precisely opposite to how it has acted for those 12 years. Sorry. This is BS.

  1. The problem I have with this concept is that it plays into the “commodity” world where Apple has never been willing to play. I cannot see any logical reason to even buy a iPhone 4 or 4S when you consider the value difference. These products have probably been purchased by the PC crowd and not people that by Macs.

    1. The gap between iPhones and “commodity” phones is big enough to drive a Mack truck through. There is plenty of high volume middle ground with decent margins for Apple to go after. In units, Apple’s percentage of the mobile phone market is in the single digits. There clearly is room to expand that figure.

  2. What a great addition this would be. Many people are “electronically challenged” – you know who you are – and this would create a whole new market segment for Apple. Besides, they would likely be interested moving up after they learn how easy Apple products are.
    My 7-year pldgranfsonkust walked in from school and asked “Papa, where’s my iPad?”

  3. The author is right, Apple has been doing a three tiered line up of current iPhone, last year’s iPhone, and the 2 year old iPhone. Going from higher priced to free.

    They’ve done something similar with iPads.

    What people may have missed along the way is that the “prior years” have sometimes been slightly modified, and often come in reduced capacities.

    This time around, I could see Apple offering the 5S, the 5, and then instead of the 4S, offering a modified 5. It would still be retina. The whole point would be to maintain one resolution and screen size.

    Also don’t look so much at funky ways of reducing costs. Switching materials will cost more in terms of tooling and assembly. Instead, they may use single core defectives, lower storage capacity, lower batter capacity, and other components that may be cheaper but don’t greatly affect tooling or assembly. Even if they don’t go with single core defectives, simply using older SOCs at this point will be significantly cheaper.

    1. Holy crap! You just put everything Apple does NOT do (except storage) in one sentence. Bravo.

      “Instead, they may use single core defectives, lower storage capacity, lower batter capacity, and other components that may be cheaper…”

      This goes against the core of Apple which is to provide the user the best possible experience.

      1. @1Racer,

        Apple has already used core defects, and continues to. See the Apple TV. Apple/Intel has a history of doing this as CPUs can have huge runs of sections that are disabled.

        This makes a lot of sense as they could use later A series which have such huge volume now that there are likely to be a lot of single cores available, or if need be make single cores without retooling. The later A series with single cores would be much faster than older A series with dual cores. They would also be more efficient which leads to…

        Lower battery capacity would be needed to maintain the same battery life. With other component changes being more efficient as well, this could result in ever more battery life, while still using cheaper batteries.

        Don’t get me wrong, I’m still talking about a high quality product, just using components that while high quality, are less powerful. Don’t confuse single core defects with being a faulty or buggy chip. Nobody is complaining that the Apple TV is low quality.

  4. The retina display is a luxury feature. It’s got to be one of the most expensive parts, and I bet many people aren’t even aware their iPhone has it. Not using retina resolutions would make the display itself cheaper, and it would also need less graphics & cpu & battery power: so it opens the door to being just as functional with cheaper hardware. And the iOS developer tools already make retina & non-retina compatibility seamless if not totally automatic.

    I just don’t see Apple reducing the price of the iPhone enough just by switching to plastic and giving it less memory. It requires a cheaper screen.

    1. I recall seeing a parts breakdown for an iPhone 4 or 4S. The display was the most expensive component, but is was still only a fairly small percentage of the total cost…less than 10% as I recall. Apple is an amazing company, but it cannot profitably sell premium mobile devices for $199. There would have to be substantial cuts across the board to reduce the iPhone price by more than 50%.

  5. I was skeptical at first, but keeping the same screen size across devices makes a lot of sense, and Gruber pointed out that Apple will also want to keep the same lightening connector. I’m sold.

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