A low-cost iPhone for developing nations: The ultimate Apple sell signal?

“After delivering blow-out returns to investors in recent years, Apple’s stock has had a rough past few months. Apple’s supposed decline is mostly attributed to the company’s maturing revenue growth due to the saturation at the top end of the smartphone market,” Dividend Pro writes for Seeking Alpha. “Analysts also contend that Apple faces pressure on its extremely healthy gross margins from increased competition with Google’s Android powered smartphones and tablets. Moreover, investors also fear that Apple has lost its ability to innovate after the death of the iconic Steve Jobs. All this has generated renewed pressure on CEO Tim Cook to come up with a strategy to revive Apple’s growth and speculation is rife that the company is about to launch a low-priced iPhone to grab a share of the huge mid to low-end smartphone market where Android powered devices from Samsung, ZTE and Huawei dominate.”

Dividend Pro writes, “Many analysts have touted the launch of such a device as inevitable given Apple’s recent woes combined with the charm of the potentially huge market. However, in my opinion Apple will not launch a low-priced smartphone, and if it does, I would be the first to sell my long-term holding in this stock… I’m sure that Apple’s management has done a complete and comprehensive analysis of the pros and cons of introducing a low priced smartphone and has very actively decided against it so far. The company does not need all the sell side analysts thrusting the company’s management to make what according to them is an incontrovertibly right decision by launching a low priced iPhone. In my opinion, the economic incentive to go for a low priced iPhone is generally overstated and is actually very small.”

“The only reason Apple will succumb to such pressure is if the management really feels that its existing strategy of growth in high margin products through consistent innovation has started to fail and Apple does not see its R&D efforts bearing fruit to introduce viable and innovative products (like the expected iWatch) in the intermediate future,” Dividend Pro writes. “To me, such a move would finally signal the end of an era of innovation by a great company which would then be forced to resort to blindly chasing market share of a mass-produced commodity just like every other company. This would be the time I would sell Apple.”

Read more in the full article here.

41 Comments

    1. that’s impossible while keeping up margins. even samsung doesn’t do that with their top tier phones.

      BoM of an iphone 5 is in the $180 range. Galaxy S3 is about the same. Impossible to sell it for $300 with no contract and make money

    2. Precisely. Declaring that Apple management is really dumb, that becoming no 1 company in the world was just a series of flukes and Kool-aid addictions is just link-bait for their hen-witted readership.

      1. as far as I know, they are letting them make payments in installments, but they aren’t doing anything more than that, just making it more affordable by doing it that way, thus keeping the same profit margins…

  1. “Many analysts have touted the launch of such a device as inevitable given Apple’s recent woes …. ”

    Is that the same Apple that is selling record levels of phones and iPods ?

    Analysts have bizarre ideas about what constitutes woes. Other companies can only dream of selling products on such a scale.

  2. Tim Cook answered the low cost question already. Older models of the iPhone are cheap or free with a 2 year contract.

    What about China Mobile? Apple hasn’t started selling to 2/3 of the China market yet. Tim Cook stated that China will be bigger than the USA and Apple dominates the American market.

    At some point the real sales from the end of 2012 till now will become public information. Samsung is not winning in area’s the Apple and the iOS devices are available. If Apple isn’t in that country or with that carrier than Apple can’t dominate it yet!

    1. Also, China will become the world’s largest luxury car market either this year or next. I think, if they can buy a top end car they can buy a full priced iPhone, iPad or Macintosh.

      This line of BS has run it’s course. Everyone that could be scared into calling their AAPL sharp would have sold after loosing 40% over 5 months.

    2. “Older models of the iPhone are cheap or free with a 2 year contract.”

      How many times to Americans need to be told that other parts of the world operate in a different way ?

      In many countries, people buy a phone outright and pay a monthly usage charge with no contract. In such cases, the purchase price is a significant issue.

      Whether or not Apple wishes to address that market is another issue.

      1. Ok, with several years of additional growth in China Mobile, Brazil, … I don’t see a problem with Apple giving away FREE smart phones to people that would also like indoor pluming. Let RIMM, Microsoft and Samsung give away FREE smart phones. If they can’t buy an iPhone then Apple isn’t worried about other products and services that they can’t afford. Apple is not The Red Cross or any other non-profit organization. You confuse profitable sales with social world wide relief. That is not Apple’s job. Obama phones cover that in the USA. I don’t know about other 3rd world countries FREE phone giveaways.

        1. I assume that when you write “You confuse profitable sales with social world wide relief” in response to my reply, you are addressing me.

          I am not in any way confused. Read what I wrote.

          The contract model is popular in the US, but elsewhere in the world ( and not just ‘developing’ nations ), people do not only buy phones on contract. Talking about an old model iPhone being free with a contract is meaningless to those customers as they don’t buy on contract. They will have to buy a phone outright and even a 3GS is more expensive than many current Samsung phones.

          I’m not suggesting that Apple gives stuff away for free, that’s why I wrote that it’s up to Apple whether they wish to address that market, but the situation remains that Apple does not currently offer an affordable phone for those markets.

          There are three obvious options for Apple. One is to offer finance deals for iPhones ( which they are currently doing in some regions, which is just a variation of the contract model ). Another is to release a cheaper iPhone with similar functionality to normal ones ( maybe no 4G ability ), but which can still be sold profitably because it’s design would be optimised for massive scale ( automated ? ) production and taking advantage of less expensive components. The third option would be to simply leave that market to others.

          I think that Apple is well qualified to take on the challenge presented by that middle course. A heavier, plastic cased iPhone with a standard resolution display would still be an iPhone to be proud of and could open up immense markets to Apple, with the option of selling more top-end iPhones too. Apple will never be able to compete at the cheapest end of the market and would never want to, but it could create an affordable and profitable phone for the more aspirational middle tier of customers within those markets.

    3. Please stop saying that the older models of iPhone are cheap or free. They are on contracts and those contracts are not available in most other countries. iPhone 4 8GB is $450 in Canada without a contract and similar in the US. Apple does not hand out free phones.

    1. Ding! Ding! Ding! Go to the head of the class. I see you were paying attention. That’s why you’re not complaining about conspiracies and stupid analysts. You deserve an A!

  3. I don’t get what people are talking about here …

    Apple has iPad AND lower cost iPad mini …

    they have iPod touch AND lower cost iPod classic, iPod nano & iPod shuffle …

    so why not iPhone AND lower cost iPhone mini.

    I think all this speculation is hogwash with people just trying to think of things to say.

    1. I think your premise mirrors mine: Apple can do more than one thing at a time. Perhaps Apple comes up with a cost-reduced phone before being able to release the iWatch/iTV/iHaveNoIdeaButItWillTakeOffLikeARocket for some practical reasons. Then this author will have sold his long positions prematurely. More power to him!

    1. Yes, you do understand Apple’s problem. No matter what they do or don’t do, they are doomed and being that Apple is always seen in that way is a problem in itself. But the real stickler is whether Apple should do nothing or not.

  4. Look folks, they need to make a low priced phone. It’s not about profit in the short term as much as it is about market share. For developers like me, it makes sense to develop for the largest market segment. If iOS is 30% of the entire market and Android is 70% who do you think will get developer’s attention? Once entrenched, market share is hard to reverse even if you have a better product (look at Mac vs PC). Why doe the PC have a greater market share even though the Mac is a better product? Because there is more development being done for the the PC. So Apple does need to flood the market with low cost phones to capture market share or it turns into Mac vs PC but instead it will be iOS vs Android with the same results.

    1. You develop for the market that will buy your product, not the market at large. You develop for people who are going to BUY your product. Platform is irrelevant.

    2. Really? So you can write an application for “Android”? Which version? On which hardware? And will any those Android-owning baristas be willing to actually BUY your product? Or will they figure a way to pirate it? Market share? How’s “market share” working out for Dell?

  5. Gawd, market saturation is such a bitch. If only the government wouldn’t take so much money from its subjects, er, citizens, the masses could actually afford such luxury items.

    1. Yes, the government should shut down the costly military and the schools. We don’t need no edumacation! Forget paying for police and prisons too. Society is not based on common agreed upon standards that are combined in something we call a governing body. Just have total freedom and lack of predicability. Yeah, let’s go for anarchy!

      1. Canada’s military expenditures in 2012: $22.8 billion
        United States military expenditures in 2012: $683.7 billion

        Canada’s public education expenditures (K-12): $29,291 per student
        United States public education expenditures (K-12): $40,905 per student.

        1. The point of the post was that governments are a a benefit to its citizens in ways that are not easy to comprehend and was posted in response to the attitude that the government is just there taking all our hard earned money. That money can only be earned when we have a society that can trust each other to keep their end of a bargain and by extension, when we can trust another group of people (another county) to keep their end of a bargain. Governments are useful even though we all can point to a few misspent dollars.

  6. Riiight…this Dividend Pro writer would sell if Apple releases a low-cost iPhone. Now that is a stupid idea.

    AAPL has already gone down from $709 to ~$435 while still making tons of profits. In my opinion, any downside (short of a global catastrophe) is already more than priced into AAPL. But my opinion on stock prices is worth about as much as any analyst, blogger, pundit, etc. — that is, very little. A coin flip has as much value as most of the stock advice provided on the internet. Make your own judgment.

    1. The only reality is that Apple’s share price has fallen quite a bit over the last seven months and yet continuing to fall even as I type. Yesterday, MDN commenters were so happy that Apple’s share price went up. I told them it wouldn’t stay up and my piss-poor attitude pulled down Apple’s share price today. Sorry, my bad.

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