Analysts: Low-cost iPhone won’t kill Apple margins; category ‘pre-emption’ needed

“Shares of Apple are off $1.83, or 0.4%, at $464.76, reversing earlier gains, as the Street digests the wave of 13F filings that yesterday showed large funds dumping the stock last quarter,” Tiernan Ray reports for Barron’s. “But some observers today were more interested debating the company’s product prospects, and gross margin implications.”

UBS’s Steve Milunovich “thinks Apple should do a cheaper iPhone, to increase its addressable market, [however] such a move would ‘produce only a few more dollars in EPS and be viewed as further incrementalism,'” Ray reports. ” Milunovich thinks Apple instead needs to press on with opening up new product categories. He cites recent remarks by former Apple employee Bruce Tognazzini about what the company could do with a watch, and concludes that Apple needs to get busy pre-empting competitors.”

Ray reports, “Also today, Evercore Partners’s Rob Cihra, who rates the stock Overweight, with a $675 price target, writes that you should expect a “low-cost iPhone” by the September time-frame, at perhaps $390 unsubsidized… ‘Our math allows Apple’s vertically-integrated business model to sustain gross margins still meaningfully higher than its peers even post the introduction of a new low-cost.'”

Much more in the full article here.

24 Comments

    1. I suspect this stupidity given us by analysts and so-called journalists is not at all a distraction to Apple. Certainly not as much a distraction as it is to we MDN readers. Apple is hopefully focusing on their core reason to get up in the morning; making great quality products and experiences. The rest will take care of itself.

      1. I totally agree with you. I was going to post this same thing. These analysts must have have gotten a colo-cerebral bypass as the reason they keep pushing the need for Apple to dominate the world. They (Apple) need to stick to the great product category.

      2. I was going to post the same thing. Seems like those analysts must have gotten a colo-cerebral bypass. They don’t seem to realize that Apple got successful by making great and not cheap products. Distraction will equal destruction. Hope they stay on course.

    2. These people don’t understand, no matter how it’s explained….

      Apple will NOT go through the hassle or time waste of fitting a world class smartphone in a “perhaps $390” mentality. Apple has not done that in the past several years since Mr Job return and the will never do it; so please all those salivating about a low-cost iphone and doing “our math allows”, spend your time more effectively and do something more productive.

    3. These people don’t understand, no matter how it’s explained….

      Apple will NOT go through the hassle or time waste of fitting a world class smartphone in a “perhaps $390” mentality. Apple has not done that in the past several years since Mr Job return and Apple will never do it; so please all those salivating about a low-cost iphone and doing “our math allows”, spend your time more effectively and do something more productive.

  1. I’m actually ambivalent about a low cost iPhone. Part of me says that a low cost alternative will dilute the brand. For sure it will gain market share but I think iPhone sales are growing nicely as it is.

    I would pay the same amount as a current generation iPhone 5 for a larger screen 5″ iPhone with 32GB. I think that’s where Apple can make a difference – by bringing a larger iPhone with larger starting storage into the market and discounting the price of an iPhone 5 by $100.

  2. It seems clear to me that Apple is simply going to follow the iPod model of maximizing its sales potential on the core item (iPhone) then to diversify out the product line over time. With iPhone 5 sales remaining strong, it will simply be a matter of when, they’ll decide to make this move. Once they feel, they’ve gotten as much mileage out of the product, they’ll likely introduce a smaller, cheaper version, maybe a larger version, and even something along, the much rumored of late, iWatch. This strategy rarely changes with them. The original product restructure under Steve Jobs in 1998-99 looked very similar as well. Patience my friends, this still is a very sound company, that makes a lot of money on their products by being very careful about their offerings and timing to market.

  3. Apple should make an iPhone made out of chocolate. It should fly. It should have a 6.3251456897″ screen. It should act as a babysitter. It should water your lawn. It shoo;ld be your friend (but not your best friend).

  4. To be correct, Philip Schiller did not deny possibility for the company to release sometime in the future of “inexpensive” iPhone, but not “low cost” one.

    “Low cost” is $$100-150 price for unsubsidised device.

    1. I think they should just discount the price of the iPhone 4S by $200 (old and obsolete parts) and the iPhone 5 by $100 (relatively powerful phone still), and bring out a bigger screen phone.

      That way they get to keep whatever manufacturing efficiencies that have been accrued and not lose that through a new design.

        1. A bigger screen phone I think is on Apple’s radar. The market for bigger screen phones is taking off. They can still sell a 4″ phone alongside a 5″ one. I think adding another row of icons isn’t going to cut it for some users and they don’t want to leave that part of the market uncovered.

          1. the jury is still out on the market taking off. Is it really taking off, or just being flooded with shipped but not sold Galaxy S3s?

            My daughter ditched her iPhone, and got the S3. Super disappointed by the screen size, big enough to be bulky and awkward, too small to do serious web browsing. iPad remains her go to device.

            For me, the iPhone 5 is approaching to tall for a good fit in the front pocket.

            I know that you have said for the last couple of years you really like the bigger screens.

            1. I have the 4S. I’m eligible to upgrade in May. I won’t. The 5 and soon to be 5S in June are simply not that much of an improvement for me. But that’s just me. Apple did make the 5 bigger than the 4S. Why? If customers don’t want a larger phone why did Apple make the 5 bigger than the 4S? Why didn’t they just stick with the same form factor as the 4S? I have tried a couple of larger screen Android phones and I have no problem handling them. And obviously a larger screen makes viewing anything that much better. So hopefully I will have a larger screen iPhone in the not-too-distant future. Let’s call it the iPhone 6. As I’ve said before, if people don’t want it Apple won’t make it. But they will make it. And no one forces Apple to make anything. Right? So we’ll see who’s right and who’s wrong. Just saying.

  5. I like that this analyst guesses that a low-cost iPhone would be priced at $390, making it the only product in its line-up with a price that doesn’t end in 9.

        1. That’s US only. Obviously the whole discussion has nothing to do with the US market. In all other markets the iPhone either enjoys lower subsidies or is not usually sold subsidized at all.

    1. And why would $390 be considered low-end? The iPhone 3GS was sold for $399 until last September. In some markets even cheaper in the end, like €333 from some European retail partners. ~ $400 is not a low-end price point. That’s the bottom of high-end. $300 is the next frontier.

      What would be really new and lucrative compared to the last 5 years would be Jony Ive actually blessing us with a fresh design for the entry level iPhone. I still can’t believe that the $149 iPod nano is getting a redesign every year, while people spending $400, $500 on an iPhone 4 will be instantly out of fashion design-wise.

  6. I think what AAPL is waiting for is the analysts to allow it to proceed with its product development and launch schedule. Certainly, as I understand from un-named sources, all the AAPL employees in Cupertino and at least three fabrication plants in China and Taiwan are on a break while the important analysts and column writers for digitial rags like Marketwatch and Wall St. Cheat Sheet decide what to allow AAPL to do next and how to announce it.

  7. There is already a cheap iPhone. It’s iPhone 4. Before that it was the 3S and the 3 before that. Next up the iphone 5 will be the iPhone for the financially challenged and the 5S and or 6 will be for those on the cutting edge.
    Same crap different day…….

  8. So the stock is taking a hit because the competition has greater market share. But if Apple makes a cheaper phone to gain market share it will hurt their margins and the stock will take a hit. Nice little catch 22 these analysts have created for Apple. Why aren’t these rules applied to everyone?

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