A cheap iPhone now appears a certainty

“Apple’s (AAPL) quarterly earnings call provided valuable insights into the possible future direction of a company that is still hurting from its delayed move to larger screen iPhones and the continued wrestling match with carriers over the consumers’ pocketbook,” Ed McKernan opines for Seeking Alpha. “Time is still on the company’s side to adjust its business model; however, it seems obvious, given the worldwide commoditization of smartphones, that Apple must make a significant adjustment on its business model by building only one high end model for the subsidized user and a much lower cost version for unsubsidized users. In other words, the iPhone 5C ended up being a tweener, not good enough to be a significant player in either universe.”

“Apple’s expanded carrier strategy enabled the company to overcome weakness in the US and a late start in ramping the iPhone 5S. Many asked what could have been had it not been short on product in September and October,” McKernan writes. “This is another case of the company placing all its marbles on the newest iPhone to satisfy its yearly pent up demand. It’s a very profitable strategy that tips on the knife’s edge of the company’s extreme logistics. The easier to manufacture iPhone 5C was offered as a buffer to any shortfall, but it looks like customers and carriers won’t buy a plan for a second rate product… However, Apple has yet to move down off of its $549 price point while the rest of the entry market has moved dramatically.”

“It is difficult for a heavily branded company like Apple to introduce the new star to the team while at the same time saying: ‘Hey don’t forget the second stringer on the bench.’ There are plenty of consumers in the developing world who would love to jump on the iOS ecosphere but don’t want to play the carrier subsidized game,” McKernan writes. “Assuming it launches a larger iPhone 6 that refreshes Apple’s current customers this fall, then the dramatic shift to $300 is the key to whether the company grows more in line with the market. It is entirely possible that the iPhone 5C becomes the $300 phone if for nothing else but to fill the gap until a true successor is developed.”

Read more in the full article here.

Related article:
Apple should buy BlackBerry and sell lower-priced iOS-powered phones and tablets under the BlackBerry brand – November 4, 2013

46 Comments

    1. Sales to people who can’t afford to buy your top-of-the-line phone are sales gained, not iPhone 5s sales lost. AND they would destroy the competition and lock people into the iOS eco-system. I still think it makes sense to compete with them even if the margins are slim. Why not own the top of the line AND the bottom?

    2. A larger iPhone, any iPhone larger than the current size would a harbinger for the end of the iPad.
      Apple cannot make an iPhone larger without having to factor in that possibility.
      Is it worth it?

      1. I use an iPad Air, which as you know has a 10″ screen. I can’t see how a 5 or 6 inch iPhone would have changed my mind about getting it. At my age, 57, the eyes ain’t what they used to be. My iPhone 5 is fine in a pinch, but nothing is nicer than that nice big screen with retina display. Though I’ll admit, that iPhone screen looks down right puny after getting spoiled with the iPad.

        Apple has to stop thinking what they think is best for customers, and start giving them what they want. People have been begging Apple for larger screen iPhones for a couple of years now, and Apple has ignored them. Now Apple’s competitors are eating Apple’s lunch because, no matter how good and/or superior the iPhone is, it’s only available with a 4″ screen. Come on Mr. Cook, even a blind man could have seen this coming.

        I hope this is a great year for Apple, but they better get moving on a larger phone, and I hope they have some sort of new tech to debut this year as well. This whole secrecy thing is getting old. Everybody thought Apple was going to come out with some new kit last year. What we ended up with was upgrade iterations of current products. No Apple TV, no iWatch, no larger iPhone, etc.

        What the hell are they doing in Cupertino? How much money did they spend on R&D? This is all they have to show? WTF! It’s 1995 all over again. Tim, time to put up, you guys are dragging your feet a bit too much. I’m worried and disgusted with the way Cook is running the show. He’s thrown out the baby with the bath water.

        Are you listening Cupertino?

    3. They are making and selling cheap iPhones already. The iPhone 5C and the iPhone 4S, and I think it has been reported that Apple is going back to making the iPhone 4 for India.

      It sounds like they want Apple to just sell the iPhone 5S cheaper.

  1. Think the 5C will be this phone later this year with either the 5S being the mid phone or they go wild and build a larger 6C and 6to cater for Asian market. The other option is to build a 4C instead with the 5S and 6 as small, medium and large 🙂

  2. It’s not been their strategy to “go cheap”. They COULD change, but nothing points in that direction so far. Personally, I think it would behoove them to come out with a no-frills iPhone for India/China market (that’s 2.5 BILLION people, btw). Even at low margins, there’s a LOT of money to be made AND they would lock them into the iOS ecosystem for future upgrades.

    To me it’s a “no-brainer”, but then what do I know? 😉

    1. I don’t like the idea of Apple cheapening its brand even if your idea is viable. Apple’s strategy has never been to go cheap to win market share and no matter what Wall Street and the news media says, Apple should continue to aim high instead of low.

      I’m a shareholder and I’m taking a beating because of Apple not going after market share but I prefer Apple to run the business the way it has but at least find additional revenue from offering services. Apple can afford to get into so many other markets so why should they compromise their ideals of their flagship product. Apple still has all those retail stores so let them work a bit harder to sell more iPhones or whatever.

      This free Android OS strategy Google is using is so unique that it won’t go down by standard price-cutting methods. It appears to be something that will have to burn itself out through platform fragmentation. Apple will just have to outlast them by selling better products.

      1. You’re not “taking a beating” until you sell, if you bought higher than the current price now. If you bought lower than the current price now, you are STILL AHEAD, and are STILL earning dividends.

  3. Another “Apple must …” article from a self-appointed expert.

    Funny how the company never did what he says they must do — in the Mac lineup — and they’re the only one growing the business and making money at it. Hmm.

    1. Yes, I don’t see any reason Apple cannot create a mid-cost phone category without sacrificing either quality or margin.

      iPad Air, iPad Mini Retina and iPad Mini (original) is a well segmented product line.

      MacMini, iMac, MacPro is a well segmented product line.

      iPods has its series of products.

      Touch screen iPhones are a huge fast maturing market. It obviously needs a segmented product line with quite different price points for people with different needs. (As with the other product lines, lower cost does NOT have to mean low quality or margins.)

      1. And look how great iPad sales jumped with the introduction of the Mini? Demand was tremendous. The same would happen with a larger iPhone. You mean to tell me, Cook couldn’t see this correlation? I’ll say again, give people what they want, not what you think they should have. How many possible new clients have been turned away from the iPhone because of its puny screen? My guess, a lot.

  4. I’d say there’s no chance at all Apple will come out with a cheaper iPhone. There’s no need for Apple do this at this point. Let’s just see how China Mobile sales go. If Apple offers a larger display iPhone it will offset some loss of sales. Apple messing around with iPhone pricing doesn’t seem wise.

    Apple should simply offset those losses by expanding its business into other markets. Apple is staying too dependent on iPhone sales and it’s about time they find other means of revenue and profits. Android has completely saturated the smartphone market and there are companies in China who’ll go to any lengths to get market share even if they have to practically give their smartphones away.

    Google and Android are Apple’s main problem. If and when Samsung moves to Tizen OS it will weaken Google to some degree. That would be the perfect time to Apple to go after Google’s search engine business. If Apple can make any headway against Google’s search engine business, Wall Street might not think Google is so invincible. iOS and OSX represent a higher class of clicks than Android and it would surely hurt Google if Apple had its own search engine on its own devices.

  5. Apple creates a low-cost iPhone. Then the analyst blast Apple because their profit margin goes done. There is no winning this war. Whether or not Apple does as the Analysts want them to do, the analysts will come up with a reason to complain.

  6. The subsidized market is dying. People will always pay a premium for higher end phones but will there be enough of them going foward. Today we are not that far off as current iPhones are selling at $50 less than when they first came out. An inexpensive phone for Apple would be about $400-$450, not $250.

  7. iPhone 5c was never meant to be a low-cost iPhone, as I’ve commented many times, even before it was released. Instead, it is now clear to me that the “c” model is just a continuation of Apple’s existing practice of offering the previous iPhone models as the lower-cost options in subsequent years.

    The adjustment (to better differentiate the iPhone choices) is that the “new look” iPhone models, such as the “5” and upcoming “6,” are converted into the colorful “c” model when the top iPhone becomes the “s” model. That “c” model continues for two years while the “s” model has a three-year run (like the 3gs and 4s). So in the next iPhone line-up, the top model is the “new look” iPhone 6, with the current 5s in the middle, with the current 5c at the low end. After that, the top model is the “same look” (but specs upgraded) 6s, with a plastic 6c in the middle, with the 5s at the low end. Rinse and repeat…

    The TRUE “low-cost iPhone” is something I’ve been advocating for a long time. Apple SHOULD do it, but as a phone that is separate from the subsidized iPhone lineup. It should be Apple’s take on what used to be called a “feature phone.” That means it has a set of great built-in features. So it is “smart” and runs “apps,” but what you get when you buy it is what you have for the life of the product. That’s how iPods (except for iPod touch) work. And that’s how many Android phones also work in the hands of their owners.

    The key advantage for such as product is production cost. An iPhone, like a Mac or PC, needs to be “over designed” because its OS is regularly “overhauled” to add new capabilities, it can run third-party apps, and it accesses the Internet in unlimited ways. It must be able to do much more than what is known to the designer. That makes it MUCH more powerful and expensive than what many mobile phone customers need.

    The low-cost Apple phone can be optimized (in design) for precisely what it is designed to do out of the box. There is no need to give it a more powerful processor, system RAM, storage, or battery; it can be fine-tuned for its built-in features. THAT allows the phone to be much less expensive, and still be profitable, as a true low-cost Apple phone, priced below $200 with no subsidy.

    I personally think such a device is the “iWatch.” But why not also release a phone version? I already have my Mac and iPad for my computing needs. I want the phone that I carry with me everywhere to be a small sliver of a device, not some monstrous thing with a huge screen.

    1. A $450 phone is hardly “cheap.” The “free” upfront cost, with a two-year contract that costs the customer more than $60 per month, is not “cheap” either.

      A true low-cost phone from Apple needs to be under $200 with no subsidy, or free with a low-cost plan that is “pre-paid” or something like $25 per month.

      1. We’ve had this entirely boring conversation before. I’m not going to bite or bother. I made my point quite clear and I don’t agree with yours. Anything ‘cheaper’ than an 8GB iPhone 4S is entirely off Apple’s radar. NEVER going to happen, thank goodness. Go play with the cockroaches and get a ShamScam phone instead, please.

        1. You can believe what you want. My issue with your original comment is the assertion that the “There already IS a CHEAP iPHONE” (and it’s the iPhone 4s). That is obviously wrong, which you admitted in your subsequent comment.

          “Cheaper” does not equal “cheap” or “low-cost.”

          1. The iPhone 4S that you do NOT consider ‘cheap’ is as cheap as Apple is ever going to go. Deal with it.

            And why you think cheap does not equal cheap is beyond my comprehension. Is ‘low-cost’ anything other than cheap? No it’s not. Apple does not give away technology. Apple is not open source. Please cull that argument from your brain.

            1. So you think a BMW 3-series is “cheap” (low-cost) because it is “cheaper” (lower-cost) compared to the 5-series. “Cheap” is definitive. “Cheaper” is comparative. If you don’t understand that?

              Read my comment immediately above your original comment for how Apple can design a phone that is low-cost AND elegant AND profitable. And it won’t cannibalize customers who want to buy a “real” iPhone either, because THAT would be stupid. It will only steal away customer who currently buy a low-cost Android device and use it as a glorified “feature phone.”

              It would have the same effect as securing customers who previously bought sub-$500 “netbooks,” and compelling them to buy an iPad instead. So you see, it is hardly something Apple would “never” do; Apple has done it already.

            2. Since I got an iPad Air, the importance to having a more capable iPhone has become less relevant since it is now my main device for accessing content. My iPhone is now primarily just a mobile phone. Nice in a pinch when I’m out and about without my iPad, but not as important as it was prior. That’s why we’re hearing people begging for larger iPhones. People either can’t afford the cost of an iPhone, plus an iPad. I’m lucky, because I can afford both. But for a lot of people, a 5″ or 6″ iPhone would fill that single device niche perfectly. I just can’t believe Apple doesn’t get this.

            3. An iPhone with a 6-inch screen is no longer a “phone.” It is something you carry around in your backpack or handbag, not your pocket. It is a tablet.

              What Apple SHOULD do is update iPad software so that iPads (with cellular) can make standard wireless calls, like an iPhone, and have the carriers offer optional plans that allow wireless calls. Maybe even subsidize iPad cost, with two-year contract. You can do almost anything related to making calls using Siri and your headset, so you don’t even have to pull out the iPad.

              There you go… your 8-inch “iPhone.” You can even upgrade it to 10 inches. 🙂

            4. Leaping out of the box of this thread:

              I like the idea of having a tiny interface between we humans and our iPads that can be used as our phones. The iPad would have all the phone tech included. It then interfaces with a simple, light, reliable headset that sits on your ear. I’m not a Bluetooth fan, but I suppose the Bluetooth headsets qualify.

              We talk to Siri and tell here what we want while our iPad stays wherever nearby. We talk to Siri during phone calls to ask it to perform queries, check our calendar, etc. It would be the evolution of a superior generation of speech to computer interfaces. No Phat ugly Phablet held to our face. The phone rings in your ear wherever, you simply talk. You go find your iPad to look up and calculate more abstract data.

              THAT I think would be the next ‘future’ for iOS devices. Arguing about phone sizes is just interim baloney.

            5. I’ll concur with that… And the “iWatch” can be a big part of that “interface” as well. You can hear and command basic things on the Bluetooth (or wired) headset, AND see and command basic things on your wrist. You pull out the iPad to do the more “abstract” things, like a complex search. Or watch a video that someone just sent you. Or because you’re in a quiet place and don’t want to talk to Siri.

              Phones (as separate communication devices) will ultimately become irrelevant, just as pagers are mostly irrelevant these days.

            6. One thing about the Samsung Brick-On-A-Wrist StupidWatch is that it MUST be tethered on a Samsung StupidPhone. That’s silliness. I’m hoping Apple uses their tech to integrate everything into their watch/watchband such that it is capable of being an entirely independent device.

              Whether a watch should also be a phone is another question. Perhaps it should be an iPad equivalent with an earpiece used for vocal interaction via Siri, etc.

              Member Salomé would like to BECOME an iPhone. I’m not of that bent. But clearly it is beneficial to be as unencumbered by clunky gadgetry as possible. I simply have no interest in sticking the gadgets INTO my person.

      2. Cell+ data service where I live (Canada) is notoriously a rip off. Cost of a plan is the same regardless of whether I buy the subsidized phone from provider or source my own phone, or that “cheap” iPhone you think Apple should make. So the way I see it, the iPhone 5 64GB I got for 179 right before the 5S release was extremely cheap to me (for what I got). I will be able to sell it for more than I paid 2 years later easily, then do the same and buy an iPhone 6 on a similar special when 6S is about to be released. I don’t mind being a year behind the latest model (not yet anyway).

        1. Obviously, you can do all sorts of stuff, if you buy it used. 😉 We are talking about what Apple does in selling NEW products.

          I bought an original iPhone used for $110, at about the time the iPhone 4 released as the newest model. I use it like an iPod touch that can make phone calls, with a pre-paid plan that costs me about $25 every 90 days, unless I use up the minutes before 90 days and buy more (unused minutes “roll over”). That’s certainly a “cheap iPhone,” but it’s not something Apple can offer.

          I intended to get another newer used iPhone, but for what I need (in a phone), there has been no urgency. So I’m still using it. I think it’s very retro cool, running iOS 3.1.3.

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