Apple seen having leeway to sell iPhone at $99

[AppleInsider]

Apple's very strong real-world revenues and its high iPhone gross margins are now thought to give the company substantial headroom for a price cut that could lead to huge strides forward in market share.

In a Monday investment note from Needham Research, analyst Charlie Wolf reiterates the belief that Apple's doubled revenue in the past year has been 'hidden' by accounting rules but adds that this leaves the company "considerable flexibility" to institute price cuts on iPhones if economic concerns or a simple desire to expand its sales necessitated a drop below today's $199 entry price.

While about two million of Apple's nearly 6.9 million iPhones are counted as worldwide inventory and so hint at a possible decline in iPhone sales in the fall, Wolf explains that iPhone sales are likely to keep increasing and so make a price slash that much more feasible.

More important is Apple's own built-in breathing space for a cut, he says. If Apple TV sales aren't directly included in the equation, Needham estimates an average selling price of about $666 for each iPhone -- an approximately 50 percent gross margin over the actual cost of producing and selling the device. That would leave Apple significant room to cut prices by itself without impacting AT&T's subsidies and could result in a $99 iPhone 3G while still carrying a well-padded 42.3 percent margin.

To the analyst, this could potentially lead to "double or triple" his institution's projected sales for iPhones, which at last check anticipated 15.7 million units in 2009; as a result, it would significantly skew worldwide market share in Apple's favor.

"In short, the iPhone... could figuratively take over the smartphone market leaving only niche players like BlackBerry," Wolf argues.

While it remains to be seen whether Apple aggressively trims prices instead of adding features, the iPhone maker is already known to be outshadowing competitors in some areas: its second-generation touchscreen phone has already outsold the BlackBerry line during the summer quarter and was one of the US' top handsets of any type in the same period.

Wolf is keen to note that Apple is unlikely to stop deferring its revenue per iPhone in the near future and thus won't automatically give a better sense of its potential to lower iPhone prices, even if the company will now make it a habit to report its true revenues with each quarter. However, it's this deferred approach that the researcher believes is key to Apple offering free major updates for each iPhone and thus to guarantee an even greater source of revenue as every iPhone owner gains the option of browsing the App Store and in turn spurs more hardware sales.

"With over 5,000 applications and growing, the App Store has the potential to generate a material revenue stream for Apple," he says. "More importantly, the App Store represents a significant and durable competitive advantage over competing smartphones... In the App Store, Apple has reinvented the PC maxim that software drives hardware, in this case iPhone sales."

[ View this article at AppleInsider.com ]

[Ireland]

The US says bring it on! Of course.

Check out these prices in 'me'

[williado21]

Don't even bother with cheaper prices...Try keeping the storage space in line with the iPod Touch. Here's the pricing structure I'd like to see:

8GB iPhone: $99
16GB iPhone: $199
16GB iPod Touch: $199
32GB iPhone: $299
32GB iPod Touch: $299

Cheaper prices don't always equal more marketshare. Cheaper prices usually equal poorer workmanship and quality of product. This is extremely antithetical to Apple's history from the late 90's to the early 2000's.

[SpamSandwich]

Where did they get a figure of $666? Sounds like a figure picked for controversy... just wait and see.

[DeaPeaJay]

Oh brother, I certainly hope not. I would much rather pay more upfront and less over time. The iPhone 3G is a lot more expensive then the first iPhone over 24 months. And it's all cause people don't consider total cost, they only look at the initial payment payment.

It's the same story with the mortgage crisis. People just look at the monthly payments and don't consider how much they're actually paying!

[Ireland]

Originally Posted by SpamSandwich

Where did they get a figure of $666? Sounds like a figure picked for controversy... just wait and see.

He was cross referencing his Microsoft analysis

[sflocal]

These guys should stick with repairing their reputation within the financial sector instead of giving lame "predictions". It's like they have nothing better to do than to sit at their desks pushing pencils and coming up with something just for the sake of doing it.

Hey, if BMW cuts the price of their cars in half, it will be a HUGE market disturbance!
Even better, if Apple cuts the phone to $50, it will be world domination!

<flamebait>

How's about the end-of-life-as-we-know-it...
"Charlie Wolf reiterates that Apple has considerable flexibility to institute price cuts to iPhones down to $0.99 cents! Mr. Wolf firmly predicts this price cut would make Apple the defacto provider of smartphones in the industry!"

I hear the villagers rejoicing!! All hail Chuck Wolf!!

What a moron.

</flamebait>

[anantksundaram]

Originally Posted by williado21

Cheaper prices don't always equal more marketshare. Cheaper prices usually equal poorer workmanship and quality of product. This is extremely antithetical to Apple's history from the late 90's to the early 2000's.

Nice point. Apple should proceed cautiously.

The iPhone does require some degree of computer savvy in use (incl. iTunes and all of its capabilities), i.e., it is not a standalone device. I wonder if the $99 price will attract a potential user segment that does not have the right computers and operating systems (e.g., right amount of RAM, processor speeds fast wifi connections for regular updates etc). The consequence may be an increase in quantity sold at the expense of customer satisfaction, implying a lot of returns, tech support investments, moaning and groaning in lots of public forums etc., all hassles that Apple might want to avoid.

Apple would be far better off sticking to its classic strategy, which is: Find the right price point for the product and stick to, but upgrade the performance and functionality of future versions of the product for the same price. THis is (largely) what they have done with MBs, MBPs, iPods, etc.

O/w, it could be shades of RAZR.

[Ireland]

Originally Posted by genericposts

I mean really, who is this guy? A Shaw Wu wannabe?

What's funny is I know these guys read AI, you'd see them saying things you read here the whole time. I'm waiting for them to quote one of us one of these days!

[JeffDM]

While I think it's reasonable to say that Apple has plenty of profit margin to sell the current products $100 cheaper, from a business perspective, they shouldn't do that until the market is saturated at the current price.

[ltcommander.data]

I'm not sure how much of the iPhone's cost is from the flash memory, but given how those prices are falling a $99 iPhone isn't unlikely. I'm not sure they want to go that far though. If the iPhone is selling well at the $199 price point, they shouldn't rush to drop the price so low, because once you introduce a $99 iPhone, it'll be hard to raise the price again.

The current iPhone 3G can be made so cheap because it's so similar to the original iPhone and so is using technology that is more than a year old now. The next iPhone revision will no doubt be a major redesign, especially internally if PA Semi has anything to say about it and it's doubtful they could maintain a $99 price point.

If they do want to cut price, maybe $149 for the 8GB and $249 for the 16GB might be sustainable.

[monstrosity]

Originally Posted by genericposts

Oh that's right. Nokia will go out of the phone biz.

I think it's fairly certain that nokia will take a huge hit over the next few years. And the iPhone will be significantly to blame.

[EagerDragon]

I do not see the point of this story. Apple can sell the iPhone if it wants to for 50 cents. There is no indication that they plan to lower the price, so why write about something Apple could possibly want to do some time in the future or never?

Apple could also stop making the iPhone and get out of the Phone business (not that they will). Is this other potential action by Apple worth a news item?

[Alonso Perez]

Originally Posted by DeaPeaJay

Oh brother, I certainly hope not. I would much rather pay more upfront and less over time. The iPhone 3G is a lot more expensive then the first iPhone over 24 months. And it's all cause people don't consider total cost, they only look at the initial payment payment.

It's the same story with the mortgage crisis. People just look at the monthly payments and don't consider how much they're actually paying!

And I'll add one more to that. Sell it unlocked for $599, even better if it includes the bluetooth headset. I'd buy it. I don't need a fancy data plan.

[BenRoethig]

I don't think we'll see a touchscreen iPhone, but I could see a more conventional iPhone Nano.

[alansky]

If Apple sold the iPhone for $25, they could quadruple market share in no time. Or they could give it away free and have a real shot at an 80% market share within three months.

[satchmo]

We're as likely to see a $99 iPhone as we are to see a $800 MacBook.

Okay not quite the same, but come on folks...this is Apple. They are a premium brand across their product line. They don't have anything as a throw away or disposable-like in price. Even the diminutive iPod Shuffle still commands $50 when it should probably be around the $25 range.

[iVlad]

I can't see Apple selling such cheap Phone. That's not apple at all. If no-one ever noticed, Apple doesn't go by he rules. Apple creates rules.

[Ireland]

Originally Posted by iVlad

I can't see Apple selling such cheap Phone. That's not apple at all. If no-one ever noticed, Apple doesn't go by he rules. Apple creates rules.

Yeah like not giving us the Copy & Paste, cool!

[Dorotea]

Originally Posted by AppleInsider

If Apple TV sales aren't directly included in the equation, Needham estimates an average selling price of about $666 for each iPhone -- an approximately

So does anyone really know what the Apple TV sales are? I'd like to know the actual numbers.

[emoney35]

Originally Posted by DeaPeaJay

Oh brother, I certainly hope not. I would much rather pay more upfront and less over time. The iPhone 3G is a lot more expensive then the first iPhone over 24 months. And it's all cause people don't consider total cost, they only look at the initial payment payment.

It's the same story with the mortgage crisis. People just look at the monthly payments and don't consider how much they're actually paying!

Not to state the obvious, but the new iPhone is 3G. That is well worth the extra $10 per month. Also, the iPhone plans are the same as other smart phone plans through AT&T.

Sure, it's ten bucks more a month, but the value is better too. I would be pissed if I was stuck with a first generation iPhone that's EDGE only!

[pooped]

Originally Posted by williado21

Don't even bother with cheaper prices...Try keeping the storage space in line with the iPod Touch. Here's the pricing structure I'd like to see:

8GB iPhone: $99
16GB iPhone: $199
16GB iPod Touch: $199
32GB iPhone: $299
32GB iPod Touch: $299.

right, so for $299 you can get a 32gb iphone, or a 32gb iphone, but without the camera, or the phone, or the bluetooth, or the mike, or the sms (the ipod touch).
so yeah: that seems like a fair pricing scheme, everybody will now want to have a touch..

[stonybrookadam]

Originally Posted by pooped

right, so for $299 you can get a 32gb iphone, or a 32gb iphone, but without the camera, or the phone, or the bluetooth, or the mike, or the sms (the ipod touch).
so yeah: that seems like a fair pricing scheme, everybody will now want to have a touch..

Well, that's sort of the point, no? Apple makes a TON of money off each iPhone sold -- not in the initial unit price, but in the amortized REAL cost of the unit for a two year contract. Think of the current iPhone price as an Apple-improved Gillette model. Except here, you PAY for the razor (phone) and the blades (contract).

When Apple sells an iPod, no more money changes hands. An iPhone, however, is a two-year mealticket and a likely upgrade candidate at the contract's termination.

I think Apple would be nothing short of thrilled to have every prospective Touch buyer get an iPhone instead.

[dasein]

Originally Posted by AppleInsider

Apple's very strong real-world revenues and its high iPhone gross margins are now thought to give the company substantial headroom for a price cut that could lead to huge strides forward in market share.

The problem I see here is ATT not being able to handle an accelerated demand on its 3G abilities...at least not right now.

[vinney57]

Do these people never learn? Buying market share with lower prices? Does that sound remotely like Apple? Jeez.

Apple buys market share with 'awesomeness'*. Much better margins and it protects the brand.


(*Awesomeness is usability + design + supporting infrastructure)

[Xtrail]

Apple wants people to upgrade to each new model. Its great for revenue and stats. Unfortunately, contracts set by providers is 2 or 3 years. They discourage your option to upgrade with penalties. This only benefits providers and forces users to skip models.

Again, this undermines Apple's potential year over year revenue.

Apple should force providers to a one year max contract

OR AS AN OPTION.....

Sell them unlocked at the Apple Store without contract for an extra $100.

[DogGone]

The 666 number comes from Jobs comments during the conference call. He quoted the revenue from the iPhone and the sales number so it ain't difficult to work out the ASP even if you're an analyst!

Cheaper iPhones would reduce the threshold for some potential customers (like myself).

[hittrj01]

Originally Posted by DogGone

The 666 number comes from Jobs comments during the conference call. He quoted the revenue from the iPhone and the sales number so it ain't difficult to work out the ASP even if you're an analyst!

Cheaper iPhones would reduce the threshold for some potential customers (like myself).

A cheaper Mac would reduce the threshold for a computer for people, as well, but it's not going to happen. A $99 iPhone 3G would undermine Apple's "premium brand" image. I can see them coming out with a $99 iPhone with no touch screen and less features, but there will always be that premium iPhone, just as there is a premium iPod (touch) and premium Mac (Mac Pro, MacBook Pro).

Also, a previous poster said the iPhone 3G with the new plan costs WAY more than the previous one, which isn't completely true. Yes, it costs more, but when broken down comes out to around $40 extra over the two years. I understand that today's money is more valuable than tomorrow's and paying more upfront does save you more, but even factoring that in, it isn't a huge difference to be upset about, considering competing phones cost the exact same per month and do exponentially less.

[TBell]

If Apple lowered the price, that'd bring the overall cost of ownership down to version one level where the AT&T cost was less.

[bobertoq]

I honestly wouldn't mind that. An iPhone in the sub 100 dollar range. I still wouldn't buy it. No t-mobile. I'm fine with my nice $150 dollar phone from t-mobile that can't do half what the iPhone can do.

[adamroth]

I'm surprised to see so many people arguing that such a scenario is far fetched. It's not, because it's happened before and because Steve Jobs practically telegraphed this move.

First, last year they dropped the price of the phone $200. It had been $600, then it was $400. Nothing's really changed this year. It's still a $600 phone, just that AT&T is subsidizing it. So they can drop the price $100 and still be making a killing.

Second, during the conference call, Jobs said 1) they're not overly concerned with bringing more handset models to market and 2) they are very concerned about not allowing competitors to offer product underneath their price "umbrella." Put those two comments together and there's one conclusion: they're going to drop the price.

The only question is when. I bet Apple doesn't know either. They'll let their sales data make that decision. It might be before the holidays.

[paxman]

Originally Posted by iVlad

I can't see Apple selling such cheap Phone. That's not apple at all. If no-one ever noticed, Apple doesn't go by he rules. Apple creates rules.

Quite. Apple doesn't seem to need to drop their prices in order to gain market share and dropping the prices to such an extent is no guarantee for success. But it is good to know that the latitude is there.

What is needed is lower subscription fees. If the iPhone was made available to all the carriers out there we might see some competition and lowering of prices. I have held out this far but I am about to buckle, and my phone bill will almost double. I am so weak!

[hittrj01]

Originally Posted by paxman

Quite. Apple doesn't seem to need to drop their prices in order to gain market share and dropping the prices to such an extent is no guarantee for success. But it is good to know that the latitude is there.

What is needed is lower subscription fees. If the iPhone was made available to all the carriers out there we might see some competition and lowering of prices. I have held out this far but I am about to buckle, and my phone bill will almost double. I am so weak!

Again, rate plan pricing is pretty uniform across the board. Verizon and AT&T are both $30 per month for data, then extra for text. Sprint has their unlimited plans, but add up to pretty much the same when compared to other carriers, and t-mobile isn't a big enough player in the US for there to be much consideration (although their plans are about the same prices for a MUCH slower and smaller network).

Having the iPhone on different carriers would not drop rate plans, just like it doesn't for Blackberries, Palms, or any other phone. All it would do is allow more people access to the phone, though that's not such a bad thing either.

[Esteban]

Originally Posted by hittrj01

Again, rate plan pricing is pretty uniform across the board. Verizon and AT&T are both $30 per month for data, then extra for text. Sprint has their unlimited plans, but add up to pretty much the same when compared to other carriers, and t-mobile isn't a big enough player in the US for there to be much consideration (although their plans are about the same prices for a MUCH slower and smaller network).

Having the iPhone on different carriers would not drop rate plans, just like it doesn't for Blackberries, Palms, or any other phone. All it would do is allow more people access to the phone, though that's not such a bad thing either.

Umm... actually it probably would, since it is the carriers that set subscription rates. T-Mobile's nascent 3G data network is only $25/month unlimited with one of their phone plans (as offered on Google/HTC's G1). That's a difference of $120/2yr contract, if you want any txt msgs; TMob includes 400 with the aforementioned data plan, AT&T rapes you $5 for 200msgs. if you want unlimited txt and data on AT&T, it costs you $50 (TMob unlimited data & txt is $35)... That's $360 over a 2/yr contract.

One item of note-- and I may be on the late late show with this-- I went to AT&T's site and went to view all phones, and where the iPhone had been prominently displayed at the top of the list in the past, it has been removed completely, and as far as I can tell, is no longer available to be purchased online. Was this part of that online pre-approval scheme that they rolled out with iP3g, or is this a newer development?

[rulebreaker]

i am not sure why the US-based posters are so sure that apple wont lower the price or sell it for $0.

in plenty of other countries the iPhone is available for $0 up front.

[reverie]

AT&T would need a $150 price drop from Apple before they could give customers a $99 price drop. The reason for this: Customers are currently enjoying a $300+ subsidy when buying their iPhones from AT&T. Customers that did not want to buy the iPhone at $199 probably also spend less on their monthly telephone bill. Thus, AT&T could only afford to offer those customers a smaller subsidy on their phone. Otherwise, the profits from monthly billings would not make up for the subsidy.

[reverie]

Originally Posted by Alonso Perez

And I'll add one more to that. Sell it unlocked for $599, even better if it includes the bluetooth headset. I'd buy it. I don't need a fancy data plan.

Why would you want to pay that much? You can get an unlocked und contract free iPhone 3G in Italy for €499 incl. VAT, which as of today equals $521.03 without Tax.

[reverie]

Originally Posted by hittrj01

Again, rate plan pricing is pretty uniform across the board. Verizon and AT&T are both $30 per month for data, then extra for text. Sprint has their unlimited plans, but add up to pretty much the same when compared to other carriers, and t-mobile isn't a big enough player in the US for there to be much consideration (although their plans are about the same prices for a MUCH slower and smaller network).

Having the iPhone on different carriers would not drop rate plans, just like it doesn't for Blackberries, Palms, or any other phone. All it would do is allow more people access to the phone, though that's not such a bad thing either.

And the iPhone 3G doesn't work on Sprint or Verizon because it doesn't support CDMA. T-Mobile would be the only alternative to AT&T. Not enough to stirr a lot of competition.

[bigmc6000]

Originally Posted by DeaPeaJay

Oh brother, I certainly hope not. I would much rather pay more upfront and less over time. The iPhone 3G is a lot more expensive then the first iPhone over 24 months. And it's all cause people don't consider total cost, they only look at the initial payment payment.

It's the same story with the mortgage crisis. People just look at the monthly payments and don't consider how much they're actually paying!

Actually, it's not "a lot" and, in fact, it's cheaper than when it first came out. It ends up being like $40 more across 2 years vs the previous cheap version but I bought my 8GB at $600 and the 3G is both cheaper up front and cheaper in the long run. (Add on to that Cingular now allows for corporate discounts and my end cost per month is actually a little cheaper with a 3G iPhone than the 2G iPhone)...

[Dunks]

Originally Posted by iVlad

I can't see Apple selling such cheap Phone. That's not apple at all. If no-one ever noticed, Apple doesn't go by he rules. Apple creates rules.

The iPhone is already available on contracts with an entry price of $0 in several countries around the world.

Everyone knows by now it's the total cost of ownership (including all ongoing payments) that determines the value of what is being purchased.