iPhone cost expected to decline 20 percent annually

[AppleInsider]

While initial sales of Apple Inc's new iPhone are expected to be modest due to its high price, the overall cost of the device is likely to fall at a 20 percent annual rate over the next 10 years, according to financial services firm Needham and Co.

Analyst Charles Wolf, who on Monday raised his 12-month price target on shares of the Cupertino-based iPhone maker to $135 from $115, said the declining cost will coincide with falling component prices and a rise in wireless carrier subsidies.

"The decline in price should accelerate demand as the iPhone invades the sweet spot of the mobile phone market," he wrote in a report distributed to clients.

Based on a series of calculated assumptions, including those related to price declines and subsidy increases, Wolf compiled a 10-year iPhone revenue and earnings forecast. In his model, the analyst assumed that Cingular will subsidize the iPhone $100 initially with the subsidy increasing $5 annually to $150 by the final year in his forecast.

"This reduces the price of the iPhone with a two-year plan to $76 in the final year of our forecast, equivalent to about a 20 percent annual decline," he told clients. "Our underlying assumption is that as Apple enhances the iPhone’s features and services, owners will use the phone’s data services more intensively and pay higher data access fees as a result."

By 2016, Wolf sees iPhone sales reaching 134 million per year, or approximately 7 percent of what is then expected to be a 2 billion unit-per-year global market. "To place this percentage in perspective," he noted, "Nokia’s sold over 300 million mobile phones in 2006 for a market share higher than 30 percent while Motorola shipped 160 million phones."

In his report, the analyst also said he would "not be surprised to see iPhone bars spring up in the Apple Stores once the product is launched in June."

Source: Needham and Co.


Wolf added that his free cash flow valuation model converts his iPhone forecast into $24 of value per Apple share.* "Factoring in cannibalization of iPod sales translates into a net addition of $20," he wrote.

[ View this article at AppleInsider.com ]
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[pdoisy]

Nice chart!
I will keep it safely and show it back in 9 years...

As a side, I don't see how a high-teck consumer product can stay on the market for 9 years... I guess they are talking about product lines.

[headboy]

am i the only one here who is sick of reading these analyst reports? i wish i could get paid to sit and speculate on companies like apple all day.

[Hattig]

Originally Posted by pdoisy

Nice chart!
I will keep it safely and show it back in 9 years...

As a side, I don't see how a high-teck consumer product can stay on the market for 9 years... I guess they are talking about product lines.

Yeah, this will be the iPhone product line. I can't imagine Apple selling the same hardware in 3 years time, never mind 9 years time! Certainly flash memory capacity will probably double every year. 8GB in 2007 -> 64GB in 2010 -> ~1TB in 2015! That will obviously lead to lower storage variants that are vastly cheaper with integrated phone chips that are lower power and faster ...

If Apple also release a lower-priced nano/mini iPhone then I wonder how that will affect those predictions?

[caliminius]

Originally Posted by headboy

am i the only one here who is sick of reading these analyst reports? i wish i could get paid to sit and speculate on companies like apple all day.

Well, I would agree with but the last time I said I was sick of analyist reports, I got smacked down by several readers of these forums telling me not to read the articles if I didn't like them.

So, publically, my stance is that yes, you are the only one sick of them. Privately, I'm with you all the way on being sick of reading random speculation. I'm just glad that they can at least stop speculating about when/if an iPhone will be announced. Although I suspect they'll quickly move back to speculation on the true widescreen iPod.

[Johnny Mozzarella]

Behold the iPhone shuffle:

What did they do with the Phone?
Who wants to use a touchscreen? Yuck!
1000 Songs and 1000 Contacts, in your ear!
The new iPhone shuffle is completely voice activated.

[JeffDM]

Originally Posted by pdoisy

Nice chart!
I will keep it safely and show it back in 9 years...

As a side, I don't see how a high-teck consumer product can stay on the market for 9 years... I guess they are talking about product lines.

Most don't last one year before getting an update. Those prices will probably come down for new variants. I hope the drop as quickly as the iPod photo pricing did.

[JeffDM]

Originally Posted by caliminius

quickly move back to speculation on the true widescreen iPod.

Some have already been complaining that the iPhone doesn't have a "true" widescreen display. It seems to be a little silly complaint, but it is true that it isn't 16:10 or 16:9.

[armen52]

bahahaha, wow, well i am so glad that this man has the insight to see what will happen in the cell phone and other consumer electronics markets all the way to 2016!!!

i dont even know what to say to that.

[Hiro]

Originally Posted by Johnny Mozzarella

Behold the iPhone shuffle:

What did they do with the Phone?
Who wants to use a touchscreen? Yuck!
1000 Songs and 1000 Contacts, in your ear!
The new iPhone shuffle is completely voice activated.

You forgot the video jack to plug in directly behind the ear.

[Hiro]

Originally Posted by JeffDM

Some have already been complaining that the iPhone doesn't have a "true" widescreen display.

Yes, forgetting that widescreen got it's marketing start with the TiPB's 3:2 screen seven years ago. The same ratio as the iPhone. Now everyone uses widescreen to describe their 3:2 (and wider) displays. Don't like Apple, redefine an industry wide term, simple really!

[anantksundaram]

Originally Posted by headboy

i wish i could get paid to sit and speculate on companies like apple all day.

What do you think we do here? And, we don't even get paid!!!!!!!

[macFanDave]

if I can wait until 2012, I can get one for free. However if I can hold out until 2013, I can get the 4 GB version and get paid about $100 and if I go for the 8 gigger I can make a sweet $120.

Delayed gratification is a beautiful skill to master!!!!

[JeffDM]

Originally Posted by macFanDave

if I can wait until 2012, I can get one for free. However if I can hold out until 2013, I can get the 4 GB version and get paid about $100 and if I go for the 8 gigger I can make a sweet $120.

Delayed gratification is a beautiful skill to master!!!!

That's just being absurd. I don't think anyone ever meant that every year it is reduced by 20% of the original value.

[kresh]

In other consumer electronics companies the argument may be made that as costs fall so will the selling price.

That's just not Apple. They rarely reduce prices on existing technology. Apple is much more about adding new functionality instead of lowering prices.

Over the next 5 years I see the price remaining the same, but lots of new features being added over time to support the current price point.

See, now I'm an analyst.

[TenoBell]

Well in 2002 the 10GB iPod was $499. Today the 80GB iPod is $349.

Apple does lower the price, just not as quickly and steeply as others do.

[rahrens]

Originally Posted by kresh

In other consumer electronics companies the argument may be made that as costs fall so will the selling price.

That's just not Apple. They rarely reduce prices on existing technology. Apple is much more about adding new functionality instead of lowering prices.

Over the next 5 years I see the price remaining the same, but lots of new features being added over time to support the current price point.

See, now I'm an analyst.

Actually, if you'd seen the CNBC interview with Steve Jobs, he did note in response to a question about price that he expected the price to drop, and made a passing mention of economies of scale as sales increase. Pretty much like the iPod has.

Yes, as newer models have been introduced, prices bumped again, but the sales price has in large part dropped from the original price.

Just look at the computers. Same thing. A new version that introduces new tech often comes at a higher price, but as speed bumped models appear later, the price has tended downward. Macs today are much more comparable with PCs, which can be attributed to higher PC prices and lower Mac prices.

But, yeah, new features do come faster than price breaks.

[Ireland]

Originally Posted by Hattig

If Apple also release a lower-priced nano/mini iPhone then I wonder how that will affect those predictions?

That's the iPhone I personally am holding out for. Bring me iPhone junior Apple please?
/on a side note I think 10 year predictions in the tech industry are absurd. I'd be more interested in an in-depth 3 year prediction.

[Johnny Mozzarella]

Originally Posted by TenoBell

Well in 2002 the 10GB iPod was $499. Today the 80GB iPod is $349.

Apple does lower the price, just not as quickly and steeply as others do.

The original 5 GB iPod was introduced for US$399.
Todays 4GB nano has almost as much storage and twice the battery life for $199

A 10 GB model was introduced in 2002 for US$499.
Todays 8GB nano has almost as much storage and twice the battery life for $249

So In 5 years the price dropped in half.
The battery life more than doubled
The weight dropped 75%
The screen is now color
The 4GB nano also holds just as many songs as the 5GB iPod did because of better compression technology.

[DoctorRobert]

Originally Posted by Hattig

Certainly flash memory capacity will probably double every year.

Certainly probably indeed.

[DoctorRobert]

Originally Posted by macFanDave

if I can wait until 2012, I can get one for free. However if I can hold out until 2013, I can get the 4 GB version and get paid about $100 and if I go for the 8 gigger I can make a sweet $120.

Delayed gratification is a beautiful skill to master!!!!

Wouldn't that be

$250 presumed iPhone components cost * .8^5 = $82 components cost for a 4 GB iPhone equal (or equivalent, maybe) to the current one in 2012?

I think that is sensible, as is expecting
a 7% market share,
a "2 billion unit-per-year global market,"
etc.

Obviously these analysts can't predict the future, and are usually very wrong, but they do some of the homework for us, and publish it (which has similar benefits to "peer review"), etc. It's just more information for us.

[nufase]

Originally Posted by AppleInsider

Based on a series of calculated assumptions, including those related to price declines and subsidy increases, Wolf compiled a 10-year iPhone revenue and earnings forecast. In his model, the analyst assumed that Cingular will subsidize the iPhone $100 initially with the subsidy increasing $5 annually to $150 by the final year in his forecast.

This is what I hate about economics, they're all based on assumptions which are usually wrong. And this is the case here, it's been well stated that the phone will not be subsidized when it first comes out, ergo there will bo no "$100 dollar subsidiztion" at inital launch, and all his figures are based on that number.

This is not news, this is some jacka**'s predictions. (who obviously doesn't pay attention to any coverage on the price of the iphone if he's making that assumption)

[Louzer]

Originally Posted by rahrens

Actually, if you'd seen the CNBC interview with Steve Jobs, he did note in response to a question about price that he expected the price to drop, and made a passing mention of economies of scale as sales increase. Pretty much like the iPod has.

Yes, as newer models have been introduced, prices bumped again, but the sales price has in large part dropped from the original price.

But you're missing the point. Once you get past the initial over-pricing of a product (be it computer, ipod, etc), and it hits a price point, it rarely goes any lower. Apple has no problem jacking up capacities, adding features, etc. But they do NOT like to slash prices. If apple took last years MacBook, they could sell it for cheaper then the current ones sell for. But they don't want that cheaper price. So they keep ratcheting up the 'value' in order to keep the prices high. That's what apple does, and very consistently.

Originally Posted by rahrens

Just look at the computers. Same thing. A new version that introduces new tech often comes at a higher price, but as speed bumped models appear later, the price has tended downward. Macs today are much more comparable with PCs, which can be attributed to higher PC prices and lower Mac prices.

But, yeah, new features do come faster than price breaks.

Keep in mind that few of apple's new releases include what I would consider 'new tech' (sorry, chip bumps don't count). As such, its not this that causes the higher prices.

And macs aren't much lower in price then they used to be, they're still sitting where they were. PCs are still much cheaper, until you try to do the fabled "Yeah, but if you configure the PC with all those features that the Mac has, whether you want them or not, the prices are comparable!" argument.

[Louzer]

Originally Posted by nufase

This is what I hate about economics, they're all based on assumptions which are usually wrong. And this is the case here, it's been well stated that the phone will not be subsidized when it first comes out, ergo there will bo no "$100 dollar subsidiztion" at inital launch, and all his figures are based on that number.

This is not news, this is some jacka**'s predictions. (who obviously doesn't pay attention to any coverage on the price of the iphone if he's making that assumption)

Guess I missed that part where someone has specifically came out and said Cingular was not subsidizing the phone.

[melgross]

Originally Posted by JeffDM

Some have already been complaining that the iPhone doesn't have a "true" widescreen display. It seems to be a little silly complaint, but it is true that it isn't 16:10 or 16:9.

Not too useful for most phones, I think we can agree.

The Communicator dos have a long display. Not good for anything much except for typing. It also costs $1,000.

[rahrens]

Originally Posted by Louzer

Keep in mind that few of apple's new releases include what I would consider 'new tech' (sorry, chip bumps don't count). As such, its not this that causes the higher prices.

And macs aren't much lower in price then they used to be, they're still sitting where they were. PCs are still much cheaper, until you try to do the fabled "Yeah, but if you configure the PC with all those features that the Mac has, whether you want them or not, the prices are comparable!" argument.

I think I DID mention speed bumps somewhere as being where they often let the price soften a bit... I didn't say they counted as new tech. Go back and read it agin.

Oh, yeah, the "fabled..." bit. As if that isn't true. Which it IS - there are plenty of places in the last 6 to 8 months that have done just such comparisons, and they are valid, no matter what you may think.

The difference that is left, where there is one, is due to the fact that Microsoft, as a monopoly, can underprice their main product, Windows OEM version, and leverage their monopoly to undercut their competition. If they had to compete in a REAL competitive market, their prices would be higher, you betcha.

[Louzer]

Originally Posted by rahrens

I think I DID mention speed bumps somewhere as being where they often let the price soften a bit... I didn't say they counted as new tech. Go back and read it agin.

Oh, yeah, the "fabled..." bit. As if that isn't true. Which it IS - there are plenty of places in the last 6 to 8 months that have done just such comparisons, and they are valid, no matter what you may think.

The difference that is left, where there is one, is due to the fact that Microsoft, as a monopoly, can underprice their main product, Windows OEM version, and leverage their monopoly to undercut their competition. If they had to compete in a REAL competitive market, their prices would be higher, you betcha.

I wasn't discounting the speed bumps, just saying that they never come with price cuts, they're done in lieu of price cuts.

I by 'fabled', I did not mean 'make-believe'. What I meant was the never-ending comparisons people bring up to try to explain the mac's high price. And they may be true. The problem is that they never cover two important areas:

1. Add in costs of features available on the PC that aren't on the mac. For example, a stock PC usually has some 8 USB ports. No Mac/PC comparison ever adds in the price of a USB hub for the Mac. Or external HD cases to 'cover' the fact that the PC can hold an extra drive. Or even taking into account that no macs have swappable video cards, except the non-consumer MacPros. Stuff like that.
2. Never price out the cost of the Mac to bring it down in specs to the PC. Oh, right. You can't remove features you have absolutely no interest in.
3. Discuss the fact that, while the prices can be the same, you are actually able to get an equivalent MacBook Pro box in a 12" case, or a MacBook in a 15" case, or a mini-tower with expandability. Or a computer without a built-in monitor so you don't have to throw everything out if you want just a new CPU.

But if you ignore all the above, you're right, the Macs and PCs are similarly priced!

[macFanDave]

Originally Posted by JeffDM

That's just being absurd. I don't think anyone ever meant that every year it is reduced by 20% of the original value.

I didn't realize that you couldn't recognize that I was being patently absurd. Nevertheless, I think the paid professional analyst was also being absurd. How much does a 5GB HDD iPod cost today? That's a dumb question because Apple doesn't sell such a product anymore.

Historically, Apple delivers more value in each release while keeping the prices relatively stable. By 2012, the fifth generation iPhone might hold 100 GB and have a 7-inch folding touchscreen and allow you to do real-time videoconferencing and still cost about $500. It will probably also make smoothies.

To think that the original iPhone will be around long enough to experience the exponential decay in price seems like some pretty dumb analysis to me. And I'm telling this to you for FREE!

[JeffDM]

Originally Posted by macFanDave

Nevertheless, I think the paid professional analyst was also being absurd. How much does a 5GB HDD iPod cost today? That's a dumb question because Apple doesn't sell such a product anymore.

I think this is being asinine because it's quite arrogant to suggest that the analyst and his/her audience doesn't know that products are updated over the years. Why should an analyst specifically state that it won't be the exact same model? Whatever will be sold five years from now will probably have the name regardless of what the specs are. Your argument also ignores the (IMO) likelyhood that sub-models will be made. Five years ago it was iPod, it still is iPod, but it is now offered in much cheaper variations under the same iPod name. It is also those cheaper variations that are selling far more than the flagship version.

Besides, how do you know that the report doesn't say this? We don't get the original report without paying, what we get is a digest version of the report made by a third party.

[rahrens]

Originally Posted by Louzer

I wasn't discounting the speed bumps, just saying that they never come with price cuts, they're done in lieu of price cuts.

I by 'fabled', I did not mean 'make-believe'. What I meant was the never-ending comparisons people bring up to try to explain the mac's high price. And they may be true. The problem is that they never cover two important areas:

1. Add in costs of features available on the PC that aren't on the mac. For example, a stock PC usually has some 8 USB ports. No Mac/PC comparison ever adds in the price of a USB hub for the Mac. Or external HD cases to 'cover' the fact that the PC can hold an extra drive. Or even taking into account that no macs have swappable video cards, except the non-consumer MacPros. Stuff like that.
2. Never price out the cost of the Mac to bring it down in specs to the PC. Oh, right. You can't remove features you have absolutely no interest in.
3. Discuss the fact that, while the prices can be the same, you are actually able to get an equivalent MacBook Pro box in a 12" case, or a MacBook in a 15" case, or a mini-tower with expandability. Or a computer without a built-in monitor so you don't have to throw everything out if you want just a new CPU.

But if you ignore all the above, you're right, the Macs and PCs are similarly priced!

Sure, I've seen 'em do that. Of course, you can get a good hub for $40, I have one sitting next to my G4 right now. But most of the comparisons I've seen didn't show PCs with that many ports. "No Macs have swappable graphics cards..." Bullshit. iMacs sure do. MacBook Pro does, too. Get your facts straight.

Why remove features - you're right. Apple makes their computers in each line conform to certain base specs, like all manufacturers do. If you want to compare specs, you have to build up the one with lower specs to the one with better specs. That's just good sense. Your argument is just a straw man to add another bullet to your list.

The whole point is, that Macs ARE similarly priced to similarly equipped PCs. Period, end of story. Make what whiney nits you want, but the fact is, that's the market today.

You don't have to buy 'em, or like 'em, or necessarily agree. But there have been plenty of good comparisons (and some by unbiased journalists as well as in PC mag itself) that show just that. If you want to insist that they are all wrong, then there's nothing I can do to change your mind.

So just go play with your PCs and I'll keep using my macs and we can both be happy.

[JeffDM]

Originally Posted by rahrens

"No Macs have swappable graphics cards..." Bullshit. iMacs sure do. MacBook Pro does, too. Get your facts straight.

I've never heard that the MacBook Pro has swappable video, last I heard, it's soldered on. The iMac (and IIRC, only the 24") might hypothetically be swappable, there aren't any aftermarket modules for it.

[melgross]

=JeffDM;1034523
Besides, how do you know that the report doesn't say this? We don't get the original report without paying, what we get is a digest version of the report made by a third party.

That's right. I often bring that point up.

These public releases are just a short condensed version, much as the synopsis of a novel on the back of the book.

[Louzer]

Originally Posted by rahrens

Sure, I've seen 'em do that. Of course, you can get a good hub for $40, I have one sitting next to my G4 right now. But most of the comparisons I've seen didn't show PCs with that many ports. "No Macs have swappable graphics cards..." Bullshit. iMacs sure do. MacBook Pro does, too. Get your facts straight.

That's nice you have a good hub for $40. The point is that no one adds those to the Mac side, regardless of its price. They just try to add whatever they can to the PC side to get the prices up. And almost every PC I've seen has more USB ports then Macs out there (hell, the G5 tower I have has a laughable 2 (after taking out the keyboard use), and one is on the front).

As for graphic cards, please pass along all links to shipping upgrade cards to those mac models you listed (actual Mac-verified graphic cards, not just "this will fit" without knowing whether they'll work).

Originally Posted by rahrens

Why remove features - you're right. Apple makes their computers in each line conform to certain base specs, like all manufacturers do. If you want to compare specs, you have to build up the one with lower specs to the one with better specs. That's just good sense. Your argument is just a straw man to add another bullet to your list.

No, you missed the point. You CANNOT get a mac laptop without a built-in camera. That's my point. You can make your whole "to compare prices, you have to match specs" argument, but the fact is that it misses the point that you have so many other choices on the PC side, where you can configure your laptop to what you need, not what apple wants you to have.

I'm looking for a replacement for my 12" iBook. I want a 15" screen, though. What's my cheapest choice? $2000 worth of computer. Can someone please explain to me how it needs to cost $2000 for someone to buy a 15" laptop. Or can you explain how Apple has determined that only pros need 15+" screens, and only consumers need 12" screens? You can get 15" PC laptops for less then $1000, but, on the mac side, you're forced into their pre-defined product holes. But what do I know. Apparently I think consumers in the market for a desktop without a built-in monitor should be able to buy one for way less than $1000 (and that comes with a keyboard, a mouse, and expandability options!)

And if you don't like my arguments, let's go to the car analogy. A Mercedes may be more expensive, sure. But take that honda accord, and deck it out with all the features of the Mercedes, and, hey, they're the same price! Of course, if you don't need all those features, you can get the Honda, but there's no way to get the Mercedes without them. But how many people actually keep going on and on about how the Mercedes is "competitively priced" when you spec the Honda accordingly? None, because people no its a nonsensical argument. But Mac lovers do it all the time to try to explain the macs high cost, rather then saying "Hey, if apple actually made computers that more people wanted, they could actually sell them at lower prices and perhaps drive even more people to the platform"