A $99 Apple-branded cell phone is inevitable, analyst says

[AppleInsider]

There's no doubt that Apple will release a mobile handset priced at $99, according to Kaufman Bros. It's just a matter of when and in what form.

The firm's comments came as part of a research note responding to investor questions about a rumored deal that would see discount chain Wal-Mart offer a $99 4GB iPhone 3G a few days before New Years.

"While we are not sure of exact timing, we think a $99 Apple-branded cell phone is inevitable," analyst Shaw Wu wrote. "As we mentioned in our initiation report, we believe one of the key things Apple needs to do to drive broader iPhone adoption is to build a more complete product line like it has done with the iPod."

He noted that today's iPhone offerings essentially consist of one product with two storage capacity points (8 GB and 16 GB), while what's really needed is a complete family of iPhones that includes "true low-end, mid-range, and high-end" models.

Echoing a recent report from Needham & Co. analyst Charles Wolf, Wu argues that there's little stopping the company from taking such an approach with its existing iPhone design, which he believes is capable of supporting a $99 price point despite being perceived as a high-end device.

"The reason being the price of the hardware that customers pay is not the big driver of economics," he wrote. "It's really about the subsidies, revenue share and royalties."

More specifically, the analyst believes the average selling price of today's iPhones is close to $700, an estimate which likely factors in an approximate $550 wholesale price to AT&T and another $100 bounty for each of the devices Apple sells to new AT&T subscribers at its retail stores (details).

Therefore, he notes that Apple could easily absorb a modest $100 margin hit to drop a model based on today's design down to $99, but adds that it's also likely that the company's carrier partners would be willing to eat that cost on their own through additional subsidies due to the handset's ability to drive higher ARPU (average revenue per user) with $30-$45 data plans in addition to pricey voice plans.

"The payback period [for the carriers] is two to three months making this an easy economic decision," Wu told his clients. "We would like to note that already in some international markets, customers can get an iPhone for free or less than $199 USD when they sign up for a longer-term contract (three years) and a premium feature package."

The Kaufman Bros. analyst maintained his Buy rating on shares of Apple on belief that the company remains "one of the better names to own in this tough economy given its strong fundamentals."

[ View this article at AppleInsider.com ]

[zunx]

THE ONLY IPHONE THAT WE WILL BUY IS:

- Unlocked to be used with any provider.
- NO contract with any provider. Prepaid.

That simple. Until then, NO iPhone!

[paxman]

Makes sense to me. In the same way the the Nano offers much more limited video / photo viewing abilities (pleasure), a scaled down iPhone could do the same. Useful for music, phone calls, limited browsing, video etc, good for texting but not for email, calendar etc. A separate dep of the app store for NanoPhone games and apps. Hm... it sounds pretty good, actually.

[bslaght]

Originally Posted by zunx

THE ONLY IPHONE THAT WE WILL BUY IS:

- Unlocked to be used with any provider.
- NO contract with any provider. Prepaid.

That simple. Until then, NO iPhone!

then you will need to pay ~$500 for an iPhone....if you don't want a contract.

[rei_vilo]

Bonjour,

There's a limited promotion for Xmas in France by Orange
iPhone 8 GB at EUR 99 or iPhone 16 GB at EUR 129
with a 24-month plan at EUR 45 or a 12-month plan at EUR 50

[PXT]

I'd like to see a law passed so that the line rental and the finance for the phone are separated out. Phone deals are like unregulated finance. If you buy a car with finance, they have to tell you the total cost, the interest, how long it takes to pay etc. This could also help with carrier switching, since you could change your carrier, but of course you'd still owe them for the phone loan. Transparency is the consumers' friend.

[satchmo]

Originally Posted by zunx

THE ONLY IPHONE THAT WE WILL BUY IS:

- Unlocked to be used with any provider.
- NO contract with any provider. Prepaid.

That simple. Until then, NO iPhone!

10 million+ users beg to differ.

[LookingUp]

Originally Posted by zunx

THE ONLY IPHONE THAT WE WILL BUY IS:

- Unlocked to be used with any provider.
- NO contract with any provider. Prepaid.

That simple. Until then, NO iPhone!

Is that a Royal "We"?

[dasein]

Originally Posted by zunx

THE ONLY IPHONE THAT WE WILL BUY IS:

- Unlocked to be used with any provider.
- NO contract with any provider. Prepaid.

That simple. Until then, NO iPhone!

But who are you going to go with? In the U.S., it's only AT&T or T-Mobile. Sprint and Verizon use Qualcomm's chip, not GSM. Supposedly there's only about a year left on the exclusive marriage with AT&T, after which time you may get your wish, but you'll still have to subsidize your own phone with a contract (although it may have dropped in price by then).

[NeilM]

Originally Posted by zunx

THE ONLY IPHONE THAT WE WILL BUY IS:
- Unlocked to be used with any provider.
- NO contract with any provider. Prepaid.
That simple. Until then, NO iPhone!

@ Zunx: (a) Don't hold your breath, and (b) Who cares?

To the actual subject at hand, I don't see justification for the assertion that "what's really needed is a complete family of iPhones that includes true low-end, mid-range, and high-end models." That's not Apple's strategy with their other products. Even the iPod Shuffle isn't a low-end product. Apple has never offered low end products, and I doubt that they'll find any need to mess with success at this point.

These "analysts" seem to have an unending stream of advice for people who know infinitely more than they do about how to be successful.

[urbansprawl]

Analysts.....are....DUMB. They don't know anything about Apple and they continually prove that.

Apple will NOT find some reason to cut out $100 of their margin (seriously? $100 of margin?!?!?!?) and I know I've read that while AT&T has gotten many new subscribers, the iPhone revenue sharing/subsidizing has cut their profit. There's no way they will eat up more of the cost, that's foolish. Apple provides a premium product ($200 is a good price for this device, look at pdas and prices of cell phones in Japan where I'm currently living) and I feel that everyday when I have that gawking moment and realize what's in my hand. As previously stated, analysts are dumb. Like Apple was going to really offer a laptop for $799 as the analysts thought. WRONG. Like Apple was gonna make an iPhone Nano like the analysts thought. WRONG. Steve himself pointed out that multiple devices with different specs and sizes makes it hard for developers.

@zunx: Oh darn, no iPhone for you. And as said, then pay the real cost of the phone. Get real, all high-tech phones are provided at a lower price because the providers are eating up some cost on the device.

[Booga]

Originally Posted by zunx

THE ONLY IPHONE THAT WE WILL BUY IS:

- Unlocked to be used with any provider.
- NO contract with any provider. Prepaid.

That simple. Until then, NO iPhone!

I prefer the practical approach. Is it worth it? Does the provider offer sufficient service in my area? Will I get the most utility for my money? For me the iPhone 3G is a yes and a no-brainer decision to buy.

The more intangible aspects of cell phone contract law don't really interest me.

[iVlad]

LOL all these analysts are always wrong, they know nothing about Apple. I think Apple fans know more than them.

[aaarrrgggh]

Originally Posted by bslaght

then you will need to pay ~$500 for an iPhone....if you don't want a contract.

Well, two days abroad quickly pays that $500 for a heavy user, two weeks for a more moderate user.

The problem is that the rate plan is the same for your primary line if you use the subsidy or not. (Isn't that anti-competitive bundling?)

For anybody that travels outside their home country a few weeks a year, the iPhone is a useless brick. It makes those people angry at Apple and their iPhone: it is seen as a defect in the phone not the network provider. The fact that unlocked phones aren't available in all markets is just stupid. Sure, you can lock the subsidized version, but offer one unlocked!

I can't afford to buy another iPhone given this situation. It is worthless at the times where I need it the most.

[Booga]

Originally Posted by aaarrrgggh

Well, two days abroad quickly pays that $500 for a heavy user, two weeks for a more moderate user.

The problem is that the rate plan is the same for your primary line if you use the subsidy or not. (Isn't that anti-competitive bundling?)

For anybody that travels outside their home country a few weeks a year, the iPhone is a useless brick. It makes those people angry at Apple and their iPhone: it is seen as a defect in the phone not the network provider. The fact that unlocked phones aren't available in all markets is just stupid. Sure, you can lock the subsidized version, but offer one unlocked!

I can't afford to buy another iPhone given this situation. It is worthless at the times where I need it the most.

My iPhone was very useful on my trip from the US to UK recently. I added the international package, which admittedly still costs $1/min for voice... but who uses voice? Text messages still use your US quota, and data was enough MB/mo that it didn't make a difference as long as I turned imagery off in Google Maps.

[bobcode]

Originally Posted by zunx

THE ONLY IPHONE THAT WE WILL BUY IS:

- Unlocked to be used with any provider.
- NO contract with any provider. Prepaid.

That simple. Until then, NO iPhone!

I can appreciate that sentiment. I'm tempted to dump my dumb phone and Sprint plan. The no-contract carriers offer savings for my usage, and they also offer free dumb phones. ...with Bluetooth!

Computers are sold without subsidizing internet plans. Fortunately, those have failed. Even Comcast internet is no-contract. I almost bought a Palm Centro for free. It wasn't, but with an iPhone for $99, with the same plan price as the Centro, I might endure AT&T.

To bad no one lowers the plan price after you've paid the phone subsidy, or without the two year agreement.

[robb01]

I bet they sell incredibly well

______________

[Shogun]

There will be no stripped down iPhone and no multiple models. There will always be one current iPhone that is extraordinary and secondary and (before long) tertiary models that sell for less with less on eBay.

Apple may bring the price down, though I kind of doubt they will. But they will not come out with multiple models.

The iPhone is what it is. Anything less would not be iPhone. I am surprised Wu doesn't get this.

[Cougar]

I have an iPod touch because I don't want to shell out $$ for a data plan I'd barely use. If Apple came out with a $99 iPhone nano that lacked that, I would totally spring for one to replace my Razr.

[nagromme]

A $99 iPhone is inevitable--someday--because things get cheaper over time. No need to analyze much deeper than that

[JeffDM]

Originally Posted by NeilM

Even the iPod Shuffle isn't a low-end product.

I don't understand that. Even if your contention is true, it shows that the iPod line is a tiered or segmented product line, where you buy either based on your desires or budget.

Originally Posted by Shogun

There will be no stripped down iPhone and no multiple models. There will always be one current iPhone that is extraordinary and secondary and (before long) tertiary models that sell for less with less on eBay.

Didn't a lot of Apple fans say the same about the iPod before the mini was released?

I think it's very silly to make such bold predictions on what Apple is going to do. A lot of times, Apple's fans are nearly as bad as analysts, though generally Apple fans forget what the fan consensus was once it's been proven to be false, though they remember those of analysts.

[Hobbes]

Well, duh.

[macjbraun]

I believe that Apple has a few million 4 Gb models laying around. Remember when the 3G came out there was an add briefly for a 4Gb iPhone?

[Roc Ingersol]

If you reduce the screen, you necessarily make _everything_ harder to use. Just imagine the portrait keyboard on a notably smaller screen. As everyone learned when they tried to use the Storm: touchscreen phones _can't_ compromise on the navigation and typing experience. Not to mention it would fracture the app store; which Apple clearly sees as a very big feature. And if the carriers/Wal*Mart/Apple can come up with a $99 price tag for a phone that obviates a $200 nano purchase, no-one's going to hold out for a fully subsidized version.

The plan prices are a much bigger roadblock. Apple needs to work out second-tier phone plans more than they need a physical 'iphone nano'. (push-only over cell and wifi for everything else? if they had a real mms solution it might work.)

As far as the hardware goes, their only problem is adding the right hardware extras to the $199 and $299 flavors to keep people from just picking up the $99 phone. More storage won't matter to many people as soon as the $99 version is carrying 8GB. What else do they reserve for the more expensive models that the market will accept being missing in the cheaper phone? Is a better camera enough?

[SpamSandwich]

Shaw Wu continues to prove that he is a clueless advice pusher and that any uninformed investor stupid enough to pay for his advice deserves to lose money.

[wbrasington]

In the words of bugs bunny..... what a maroooooooon.


First, there is no reason for Apple to create a family of iPhones. Leave that to everyone else to build different models to offset what each one is missing. (See Rimm product line for examples)

I mean really, what would the model lower than the current iPhone omit?
Let's see, can't take the "phone" part out, that would make it the touch.

Can't make it a flip-phone, that would make it a non-Apple hard to use ugly thing.

Can't add a keyboard, that wouldn't make it smaller and would make it bad like the other hybrids.

What do you "take out" to make it a low end iPhone?

Does anyone really think Apple should get in the dumb-phone business? No.

I can't understand how an author can write that Apple will definately "come out with" a 99 dollar phone and list one reason they could just eat 100 in margin to make THIS one actually BE a 99 phone.... and then say they need a low end model to fill out the family.
What's THAT one cost, is it free?

Puff piece, made up stuff, won't happen.

People been saying Apple will have a 500 dollar laptop for years.
Someday they'll be right.
They'll never be relevent, neither is this author.

[dualie]

They could give the phone away and I still won't use AT&Ts overpriced "service." It's completely ridiculous what they charge.

[wbrasington]

Originally Posted by JeffDM

I don't understand that. Even if your contention is true, it shows that the iPod line is a tiered or segmented product line, where you buy either based on your desires or budget.

The tiers are based on significant omissions for the iPod line.
Anyone that looks at a shuffle, and the Nano, can see a pretty significant difference in what was taken out.

ok, Jeff. Let us know what YOU think the low end iPhone would be missing when you pick it up and look at it in a store.
Keep in mind what Apple has invest in the App Store, so turning their back on that isn't likely.
Just what would a lowend iPhone have?

Originally Posted by JeffDM

Didn't a lot of Apple fans say the same about the iPod before the mini was released?

As I recall, the Mini was a complete surprise.
As I recall, it never occured to anyone that Apple would market a second "line" of players.
So no, unless you can back it up..... I don't think anybody was saying that.

Originally Posted by JeffDM

I think it's very silly to make such bold predictions on what Apple is going to do. A lot of times, Apple's fans are nearly as bad as analysts, though generally Apple fans forget what the fan consensus was once it's been proven to be false, though they remember those of analysts.

I think it's silly to say stuff that doesn't make sense.
Again, show me a what a great cut-down version of an iPhone that can play apps off the app-store and I'll retract the "silly" label.
Until then, this not just silly.
It's an example of why this guy should be universally panned for outstanding achievement in silliness.

Generally, I don't understand why this guy doesn't suggest a really cheap laptop from apple could come out if they'd just leave out the screen.
If it was Apples business plan, to chop features to gather market share they would just change their name to Dell.

[noirdesir]

Originally Posted by PXT

I'd like to see a law passed so that the line rental and the finance for the phone are separated out. Phone deals are like unregulated finance. If you buy a car with finance, they have to tell you the total cost, the interest, how long it takes to pay etc. This could also help with carrier switching, since you could change your carrier, but of course you'd still owe them for the phone loan.

Good idea. This would show the complex financials behind this. An example:
- new phone: $500 = $200 + 24 x $20 (this is using a somewhat arbitrary compound interest rate), this comes to $180 in interest rate payments
- monthly contract: $50
- discount on monthly contract if signing up for two years: $20/month

What the customer currently sees: $200 + $50 per month

[teckstud]

Will the $99 iPhone have to be with AT&T? (please no, no)

[BigNTasty]

Remove 3G and the expensive DataPlan. Remove GPS and Wifi. Apps could still be synced through the computer. Use a slightly smaller screen with the same pixel resolution. In the same way as the nano has the same resolution as the ipod even though they are different sizes. Use a smaller battery because of what is being omited above. 4 GB of RAM. And there you have it a 99 dollar iPhone with a much cheaper service plan. =-)

[pstone83]

i don't believe that anything can really be taken away from the iPhone. Besides the GPS and 3G which leaves you with a first gen iPhone or no cell so you get a Touch. These are the most basic models available that will still work with the app store as a previous poster mentioned. All iPhones it is safe to say will have to be as capable as this first gen as to work with current apps but future iPhones can and will add features that new apps will take advantage of as they surface. So maybe someone could tell me would it be possible for apple to sell refurbed first gens or left over 4 gig 3g's at lower price to either help clear inventory or drive up adoption.

[sflocal]

Originally Posted by bslaght

then you will need to pay ~$500 for an iPhone....if you don't want a contract.

Nah... then he will find something else to whine about afterwards.

[dizzy13]

Apple would be out of business if it ever listened to analysts...here is a good list of thing apple didn't do that analysts wanted them to.

http://counternotions.com/2008/11/27/avoided/

Apple's whole strategy with the iPhone is a single device that is easy to support maintain and write applications for. Developers can write an app once and it works pretty much on all iPhones and iPod Touches. I mean they will have different version each year, but not multiple versions at the same time besides storage.

I also think if they ever do fill in the price umbrella with a $99 phone it will just be the 8GB moving down to $99, 16GB moving to $199 and a new 32GB moving into the $299 spot. Why would they move backwards and make a 4GB phone?

I think we could see a 32GB phone sometime in January

[inkswamp]

Originally Posted by iVlad

LOL all these analysts are always wrong, they know nothing about Apple. I think Apple fans know more than them.

Uh-huh. Shall I repost my ridiculously long list of things Mac fans have claimed Apple wouldn't do?

Thus far, Apple has followed their iPod strategy. They've introduce a few novel, flashy ideas to an existing product, marketed the hell out of it, kicked up the features several notches to keep the competition off balance and then pushed prices down to attract a larger market. Anyone who thinks Apple won't find a way to offer the iPhone for a lower price isn't looking at what they did with the iPod.

[charlituna]

Originally Posted by zunx

THE ONLY IPHONE THAT WE WILL BUY IS:

- Unlocked to be used with any provider.
- NO contract with any provider. Prepaid.

That simple. Until then, NO iPhone!

first off I think you mean that you will buy. do NOT assume to speak for the masses.

second, eventually the phone probably will be unlocked and perhaps with the choice of no contract or a contract with whomever who will pay some or all of the cost like standard phones.

HOWEVER, Apple owes ATT for putting up a huge chunk of the R&D costs and keeping their mouths shut about the device design. The Exclusive Contract is how that money is being paid back. Not unlike how you go sign for service and they let you walk out with a $300 phone that you didn't have to pay up front for. You paid it off over the length of your contract. Only there's no ETF in this deal and the money is a lot higher amount (and top secret).

[charlituna]

Originally Posted by bslaght

then you will need to pay ~$500 for an iPhone....if you don't want a contract.

the price isn't the issue. You can't pay for a phone until there is a confirmed line activation with ATT. and that line activation requires a contract.

there is no option to pony up even $1000 and walk out of a store with a phone that has no contract. Least not in the US. in the 3 countries in the world that have laws against locking a cell phone to a carrier you probably can.

[sc_markt]

How about an iPhone with wifi so we can use it to make calls while using the built-in wifi to browse the web saving us the extra costs for the AT&T data plan? I want an iPhone but I don't want to pay $70/month but I want the ability to surf the web and get email.

Are there any phones out there that have wifi built in?

[copeland]

T-Mobile Germany has beaten Kaufmann Bros. to the punch. They already offer the i-Phone for € 1,- (8 GB; € 20,- for 16 GB). You need to sign a contract with € 69,- of monthly cost minimum. But you can have an i-Phone wih just € 1,- initial cost.
http://shop.t-mobile.de/iphone/tarif...1410-_,00.html

[Archipellago]

Originally Posted by copeland

T-Mobile Germany has beaten Kaufmann Bros. to the punch. They already offer the i-Phone for € 1,- (8 GB; € 20,- for 16 GB). You need to sign a contract with € 69,- of monthly cost minimum. But you can have an i-Phone wih just € 1,- initial cost.
http://shop.t-mobile.de/iphone/tarif...1410-_,00.html

eh?? Iphone is free in the UK on certain tarifs.

not that its worth the overall outlay