Needham’s Wolf: It would be ‘impossible’ for Apple to successfully build a cheap iPhone

“It would be ‘impossible’ for Apple to successfully build a cheap iPhone without doing lasting damage to the company’s highly profitable and successful smartphone brand, analyst Charlie Wolf of Needham & Company believes,” Neil Hughes reports for AppleInsider.

“Wolf’s thesis was presented on Wednesday in a note to investors, a copy of which was provided to AppleInsider. In it, the analyst went as far as to say that building a cheap iPhone to capture the low end of the smartphone market would be an ‘insane idea’ for Apple, destroying the company’s gross profits seen in its current strategy,” Hughes reports. “The analyst doesn’t believe that Apple will change its iPhone pricing, even as the maturing smartphone market inevitably becomes saturated, limiting growth potential. Wolf also doesn’t believe that carriers in markets like the U.S., where contract subsidies are common, would begin cutting back on those subsidies, as executives at AT&T have suggested they will.”

Hughes reports, “‘The evidence suggests that Android users are switching to the iPhone in far greater numbers than users switching from the iPhone,’ Wolf wrote. ‘In a saturated market, we believe, if anything, that the migration of Android users to the iPhone will accelerate, absent significant price cuts on Android phones. Obviously, growth will slow. But we don’t believe it will stop.'”

Read more in the full article here.

MacDailyNews Take: Wolf, one of the best Apple analysts, is right, of course.

Apple sells premium products at premium prices to premium customers.

Apple has no need to bother with the Hee Haw demographic.

If you’re still waitng for a “cheap iPhone,” you’re not an Apple customer.

Related articles:
What we mean by ‘Hee Haw demographic’ – November 13, 2013
Yankee Group: iPhone ownership in the U.S. will top Android by 2015 – April 26, 2013

47 Comments

    1. I agree. Being financially challenged does not equal stupidity or lack of appreciation for Apple quality. I feel the sting every time MDN stoops to using the phrase, despite its prior excus…er…explanations for its usage.

    2. Agreed, suznik. I have made the same request several times, but MDN did not even acknowledge my input. There is no need for this terminology, but MDN has fallen in love with its own wit. As if Apple haters needed additional ammunition in their zeal to label Apple fans as arrogant and elitist…

    3. Thanks MDN for calling my Mom a hee haw.
      I think it would be cool if she could us iOS as it is beautiful, easy and intuitive. But she does not need nor want to spend 500 bucks on a phone. Look, some people do not want the gazelle of phones, and it would be nice if they were not left to Android (yuck).

      1. Tell your Mom, you only live once.

        My grandma got a gold 5s because she said she was tired of penny pinching. In the end it is actually cheaper. Why? Because quality made products give you less stress and sell at a higher resale price.

        Example: iPad 4 cost me 800 on the day it came out……what…. 2 years ago I think. Sold it yesterday for 550. So it cost me 250 over …..let’s be conservative…..600 days. That’s about 40c a day.

        If your mom weren’t such a HeeHaw (as you claim), she would know that, wouldn’t she?

      2. YOU only have one Mom.
        I bought my Mom an iPhone for her birthday couple of years ago.
        I pay the monthly bill, ATT has a plan for seniors. 😉
        Upgrading her phone to the 5s, trade in at Apple store cost $16 and ATT upgrade fee $35.
        What’s holding you back?

      3. Why does your mom have to spend $500 on an iPhone? You can get an iPhone 5c for $99 (or less on sale). You can get the 4S for free. Sure, that’s with a contract subsidy, but you don’t pay lower monthly fees without a contract.

  1. Apple could build a cheap phone, but they wouldn’t make any meaningful money from it, and potentially it could cannibalise their own sales. Ultimately, it would not help profits, and would lower the quality of their products damaging its overall image. What would the point be?

  2. One of the reasons why I didn’t buy an iPhone 5S is iOS 7. The other reason is cost. $650 for a phone is crazy in my opinion.

    Based on my experience with the iPhone 5, the battery is pathetic, lasting less than half a day under intensive use. So because of all these constraints imposed by the battery, I have had to turn off Bluetooth, background app refresh, location services, occasionally LTE, occasionally Wi-Fi, in which case I might as well be carrying a dumb phone.

    I see my phone replacement cycle growing longer and longer. I’d rather spend my money buying an iPad or iPad mini – one time payment, no contract, pay as you go data plan and a long battery life, not to mention bigger screen.

    Unless the iPhone 6 comes with a significantly bigger screen (between 4.7″ and 5″) and a significantly longer battery life, I can’t see myself buying iPhones in the foreseeable future.

    1. While that’s a valid opinion for discussion (one you tend to repeat over and over) what, if anything, does it add to the discussion of the article? I realize you want any excuse to bash Apple but at least keep it on topic.

          1. Who are you to tell people to stay on topic? You’re not in law school. By the way, why do you consider honest criticism of Apple, Apple bashing? BLN makes very good points. Who elected you defender of all things Apple? Like I said, mind your own business.

        1. Don’t forget to ‘condition’ your battery by draining it down to nothing on a regular basis. Apple’s usual recommendation is to entirely drain lithium batteries once a month. (But being OCD about the timing is not necessary). I can verify that it provides better battery life.

    2. BLN, you described the battery life of the iPhone 5 as “pathetic” saying that it lasts less than half a day under intensive use. That does not surprise me in the least. I don’t know of *any* lightweight portable computing device that lasts more than half a day (by that statement, I assume that you mean 12 hours) under those circumstances.

      Apple generally leads in terms of battery life versus size, weight, and functionality. In fact, people called Apple and SJ liars for the pre-release claims of 10 hours of battery life for the iPad. Apple has maintained and even extended battery life for the iPad, iPhone, MBP, and MBA even while making them thinner, lighter, and more powerful.

      I have advocated in the past that Apple consider adding a bit of weight and thickness to some of its devices in order to improve battery life. But that does not mean that I agree with your assessment of iOS products.

      If you are not buying iPhones, please enlighten us as to what smartphone meets your lofty expectations?

      1. I’m not advocating buying an Android phone. Whatever the faults with iOS 7 are, I remain a committed iPhone user, except my replacement cycle will be stretched out to 3 instead of 2 years. I can’t see a compelling reason to get a 5S, not with the same tiny 4″ screen and poor battery life.

        1. Without the SJ reality distortion field working anymore, you kinda have to ask yourself what features are so important that you have just got to upgrade.
          What real world features do you get from a 5s or 5c that are $500 worth of upgrade from a 4S ?
          – we’re talking phone features not mini ipad – ie something that you can carry in your jeans not a bag.
          You’re right in that the Apple eco system is the key feature so a 4S is affordable and delivers a quality set of features well – even if it doesn’t have every feature on offer.

          1. @ Max. One thing with Apple’s (and Gazelle.com and Best Buy and ATT, etc) new trade in policy for old phones, it is usually possible to trade in your old (out of contract) iPhone and sign up for the latest version for practically little if any additional charge, once you have fulfilled your 2-year contract. In fact, in America, if one is on contract, it would be pretty foolish not to do that. And I’m sure the 5s features are well worth the upgrade anyway. Just read all the reviews out there. (I have the iPhone 5 which has been out less than two years so I am not eligible ATM, but I am sure that I and millions of others will be looking forward to the NEXT iPhone (6?) come next Fall.)

      2. Not just people, but EXPERTS called out Apple on its battery life claims. ‘Preposterous,’ ‘unlikely in the extreme,’ ‘impossible,’ ‘misleading,’ and ‘with crossed fingers’ are amongst the terms some of them employed, all the while dismissive of the serious research Apple alluded to. They hadn’t the sense, or the decency, to wait and see for themselves. No, they already had the answers, upstarts be damned.

        Is there a wonder why EXPERTS excite contempt? They are bought and sold, yet their self-image is soft and pure as the driven snow.

  3. Charlie Wolf is quite right about Apple not having any intention to make a cheap iPhone. What Apple can do though is to use it’s skills in supply chain management and in-house design to mass produce a top quality phone at a lower cost than their rivals, which then allows Apple to make a healthy profit margin.

    When you look at all of Apple’s rivals, many of them are not making much money on smartphones and even the most successful rivals could never dream of making the sort of margins that Apple enjoys.

  4. I’m a strong believer in buying quality over quantity. I’m on my third iPhone, and it performs and looks as good as the day I bought it. I’ve passed my first two onto family members. The iPhone 4 I gave to my mother is still in excellent condition. How many Android phones can make the same claim.

    Like the Brits say, don’t be a penny wise, and a pound foolish. I had a Kindle I got for free from my cable provider for signing a contract prior to getting an iPad Air. The difference in quality between the devices is quite astonishing. The Air feels solid and tight, with remarkable performance. Not only was the Kindle incredibly slow and kludgy, it had that low quality, cheap plastic feel to it. You dare not drop it for fear of it shattering on impact.

    I’m sure when I sell my iPhone 5 next September to get an iPhone 6, I’ll get top dollar for it. Besides, why would I want a device with poorly written apps and without the type of app availability offered with iOS devices.

    Nobody even comes close to the quality, performance and aesthetics of Apple products. With the kind of deals you can get with two year contracts, it’s stupid to settle for cheap plastic crap.

  5. It’s well possible, but not to the extent people believe would still be viable (hitting 400$ should be possible).

    Let’s say Apples finally makes its flagship larger-sized, say 4.7-4.8 inches with smaller bezel. It could still sell the older 4.0″ format as a ‘mini’ version but prepaid only (no subsides, so would be most handy outside US. US would prefer the larger, more powerful iPhone available on contract).

    1. The flagship needs to be offered in a variety of sizes, the least of which should be 4 inches. Apple should never get to a point where their base screen size is larger than 4 inches. And Apple can’t possibly create a new phone with the latest technology that retails for $400.

      You see, that is the gist of the problem with the idea of Apple making cheap phones. They are a forward thinking company that doesn’t want to be hamstrung with lots of old legacy products. The only way to make a cheap, profitable iPhone is to hobble it with yesterday’s technology. Apple doesn’t want to do that. For your theory to work they’d either have to leave the iPhone 5C on the market as is for years on end or make a new 4 inch phone with the innards of an iPhone 4.

      Cheap iPhone = the end of Apple

  6. Nobody is rushing to stop the subsides, this is just another lame trial balloon that’s going nowhere for ATT, the dumb pipe that has more to lose than Apple by even thinking of such a knee jerk move.

  7. Plenty of good previous generation iPhones available to serve a lower price point. No need for Apple to produce a brand new low-cost iPhone. Just keep down streaming the past years of production.

    1. To a point. The iPhone 4 is as old as you can go and still run the latest software. Apple can leave the trailig edge low enough to allow new users to experience the benefits of the eco system software wise before upgrading when they can afford something better if needed. (where ‘if needed’ doesn’t always mean the same as ‘wanted’)

  8. The real question is of course, how cheap (inexpensive) is the iPhone 5S really? Let’s see:
    A superb mobile phone: Value $75-100
    A magnificent Camera including wireless photo transfer and storage: Value: $400.
    A terrific GPS system that works better than the $1500 system in my Toyota.
    A medical bonanza, including Heart Monitor, record keeping, health aid, dieting aid, and help in numerous medical situations. Value: At least $400 to $500.
    A fabulous book reading device. Value $200 (with book storage)
    A terrific iPod and music storage $300.
    A delightful gaming device. Value $200.
    This list goes on and on. I think Apple could RAISE the price of the 5S, and after the initial yelping, the sales would continue. and maybe even increase.

    1. Sorry the iPhone camera value is more like $150. It’s not that great, nowhere near my canon s95 which is in the range you mention ( the successor models anyway, s95 is 3 years old now). The iPhone camera is only amazing under perfect ideal bright conditions. It’s terrible and lowlight and video quality is grainy if you watch it on anything larger than an iPad.

  9. It’s myopic to say Apple is only for premium users. I always imagine some poor kid – where in Alabama, Asia or Africa – using an Apple product and coming up with the next big thing. One’s life can change getting into the Apple ecosystem. Apple should always provide a way up that ladder rather than just ignoring that market.

    They should offer a $299 black 8GB iPhone 5C for emerging markets only. Perhaps skimp on the packaging a bit and not include headphones. Build costs would probably be $130.

    Don’t forget Apple’s current position came from the halo effect of selling inexpensive iPods to people of all classes who came to see the light.

  10. Apple seems to have no problem offering iPods at different price points, serving a wide range of user needs.

    Apple’s strategy of offering a very limited range of iPhones remains puzzling. At the very least, Apple needs to continue to differentiate appearance and sizing. introduction of the ‘5c’ instead of just continuing production of the glass&metal iPhone 5 was actually a modest step in the right direction, even if the ‘5s’ easily outshadowed it.

    Apple would be wise to develop a less expensive model for emerging markets. It isn’t impossible, and quality does not have to be sacrificed. Most people don’t even use a fraction of the features. Take an iPhone 5c, drop the Facetime camera and GPS and stop overcharging for memory, and Apple’s new phone would take over China. Apple DOES need to get that continent attracted to the platform, because Google is having way too much success there.

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