Why should Apple build a cheaper iPhone? Because not doing so would be stupid

“Apple needs to finish up development of the low-cost iPhone it’s been working on for the past few years, and bring the device to market now,” John Paczkowski reports for AllThingsD. “Because to do otherwise is utterly illogical. There’s simply far too much revenue at stake.”

“That’s the argument put forth by BTIG analyst Walter Piecyk, who says that Apple will debut a low-cost iPhone before the year is over, because it would be stupid not to,” Paczkowski reports. “Piecyk, like many who follow Apple, sees massive untapped demand for a lower-end version of the company’s flagship smartphone. According to his back-of-the-napkin math, Apple could sell about 36.5 million such iPhones in fiscal 2014. And that could add $11 billion in revenue for the period, even after accounting for some cannibalization of the higher-priced models.”

Read more in the full article here.

[Thanks to MacDailyNews Readers “Fred Mertz” and “Dan K.” for the heads up.]

Related articles:
China Mobile to spend $6.7 billion building out 4G network ahead of expected Apple iPhone deal – March 14, 2013
Did Apple exec Phil Schiller really shoot down a cheap iPhone? – January 11, 2013
Reuters withdraws report of Phil Schiller’s ‘cheaper iPhone’ denial citing ‘substantial changes’ – January 11, 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

40 Comments

  1. I don’t like the idea of Apple building “cheap, plastic” smartphones either, but they certainly need a reasonably priced smartphone for the China smartphone market. I feel certain Apple is going to have to make some sort of tradeoff between profit margins and higher sales to penetrate the China market. If Apple doesn’t do something, the share price is likely to continue falling. Wall Street doesn’t value profits, cash, no debt load, dividends or anything else except for major market share. Apple will be left with some very unhappy shareholders, including myself, unless Apple really starts giving some of the highest dividends available.

    My question to all of you is how can Apple’s stock be worth anything if Wall Street only values market share leaders and those are the companies worthy of share price gains. Do most of you really think that Wall Street is going to start valuing Apple any higher as their market share falls?

    Some guy on CNBC was already shouting about how Samsung has already beaten Apple and will soon take over Apple’s market share in the U.S. Do you think that’s going to make investors start buying Apple stock? I’m almost certain no investor wants to back a market share loser. So if Apple never goes after any market share how can the stock itself be worth anything if no one wants to buy it.

    1. Sooner or later, reality sets in. Continue to value AAPL based on share of the total market, regardless of profits, and sooner or later you have AAPL valued at its “cash on hand” value, which will continue to rise, and you have Google or Amazon that’s got huge market share and small profits, which results in a stock price unsupported by reality. Remember all those companies in the late 1990’s that ate their way through billions in capital and then went bust? We never learn.

  2. Apple will debut a low-cost mini-tower before the year is over, because it would be stupid not to…

    Apple will debut a low-cost netbook before the year is over, because it would be stupid not to…

    snore.

  3. There are some customers you can’t afford to do business with. They want too low a purchase price. They won’t spend money on services and accessories. They generate customer service and support expenses out of proportion to the revenue they generate, because they aren’t very tech savvy.

    Apple has defined the “market” it wants to go after, and it’s gotten a 90% share of that market. The customers who fit into the category above were excluded from Apple’s desired market. Because of this, Apple has a 70% profit share in the total market, while Android devices, designed to appeal to that segment that Apple didn’t want, are used significantly less on the internet, generate less money in apps and accessories, are typically running two or three OS generations behind the current one (if they can be upgraded at all), and require excessive support.

    That’s the “market share” fallacy. Microsoft and its PC manufacturing partners have been the victims of this fallacy in the computer industry. We’ll be seeing the same thing happen to Samsung, Google, and Amazon in the near future.

    1. “They generate customer service and support expenses out of proportion to the revenue they generate…”

      Definitely!!! As my own business developed, I found that those spending $500 with me wanted EVEN MORE support/education time than those spending $20,000. And the second difference was that those spending more money expected to pay for any time they asked for while those spending almost nothing somehow thought they’d get all that time for free!!!

      This was almost always true, and almost always in clear inverse proportion to how much was being spent.

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