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$399 low-end iPhone predicted to grow Apple's user base without affecting margins

post #1 of 31
Thread Starter 
If Apple were to offer a new unlocked iPhone priced at $399 without a service contract subsidy, the company would be able to grow its install base without deteriorating its gross margins, one analyst has projected.

Huberty


Estimates published on Monday by Katy Huberty of Morgan Stanley peg the cost to Apple of a 16-gigabyte low-end iPhone at $244, including bill of materials, manufacturing, warranty, and other factors. Her assumptions are based partly on checks within Apple's overseas supply chain.

Based on her estimates, a low-end iPhone priced at $349 would be neutral to Apple's total gross margin dollars. And if Apple were to reach $393, a low-cost iPhone would be neutral to its current gross margin percentage.Katy Huberty of Morgan Stanley believes a $399 low-cost iPhone could actually result in a slight increase to Apple's overall margins, and would signal the end of the iPhone 4 and iPhone 4S.

Huberty's analysis is meant to ease concerns among investors who believe that a low-cost iPhone could drastically reduce Apple's gross margins. Instead, she has argued, such a product could in fact increase Apple's margins slightly if it were priced at $399.

She expects that Apple will launch a low-end iPhone later this year, and in the process will likely discontinue the legacy iPhone 4S and iPhone 4 models. Her prediction is based on the assumption that Apple will borrow the same strategy Apple employed in releasing the iPad mini in late 2012 for $329, or $170 less than the latest-generation full-size iPad.

Huberty


"We now see the most likely starting price for the low-end iPhone at $399, as supply chain components appear similar to the current iPhone lineup and the low-end iPhone would replace the iPhone 4/4S sold in the $450-$549 range before recent discounts," Huberty wrote.

"At this price point, even with a 50 percent low-end volume mix, the low-end iPhone is 5 percent accretive (to) total company revenue, 6 percent accretive to gross profit dollars, and 10 basis points accretive to ross margin versus our current (second half of calendar 2013) estimates."

Based on her models, the $399 16-gigabyte low-cost iPhone would carry a gross margin of 35.7 percent ??still well below Apple's premium iPhone lineup, but in line with other products sold by the company. Margins would increase to 42.3 percent for a $499 32-gigabyte model, and 44.9 percent for a $599 64-gigabyte option.

By the end of 2013, she believes Apple's lineup will include a high-end "iPhone 5S," the low-cost iPhone, and an 8-gigabyte iPhone 5 model that would be sold for $549 unlocked and without a service contract. She believes the unlocked "5S" prices would remain as they are for the current iPhone 5 lineup: $649 for 16 gigabytes, $749 for 32 gigabytes, and $849 for 64 gigabytes.

Last month, after a visit with tech suppliers in Asia, Huberty signaled to investors that she believes Apple will build multiple new iPhones in the June-July timeframe. It's expected that Apple will unveil a successor to the iPhone 5, as well as potentially expanding the iPhone lineup with a new low-end model, this fall.
post #2 of 31

It seems like this is the most traction this rumor has ever had.  Curious if this is the year we see it (No 4 or 4S)

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post #3 of 31
Has to be priced no higher than $349 to be a contract free high volume sales hit I reckon.
post #4 of 31
I think $399 for a new value model unlocked is the right price, all things considered. Any less and they'll be leaving cash on the table, any more and there will be a psychological pricing barrier.

Design-wise, they could use the same unibody aluminum iPhone case, 4" Retina display, include LTE, have a cheaper camera and NAND, offer 16 GB storage capacity only, etc. The 4 and 4S will be axed and this new model will get the last gen iPhone's one-year-old guts. (I think the chassis material is still a big unknown among big unknowns. Polycarbonate may or may not be significantly cheaper, overall.)

In terms of financing, I'm not sure how they'll justify a $250 price differential between this model and the premium latest-gen model.

Combined with more of their new and aggressive financing options, especially in developing markets, this new model will be affordable to a larger portion of their unaddressed markets. In my view, if someone cannot afford $399, he or she simply cannot afford an iPhone; that device is a luxury, not a necessity.
For your sake, I hope you're right.
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For your sake, I hope you're right.
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post #5 of 31

The iPhone 3Gs was sold unlocked for $375 until last September:

 

http://www.macrumors.com/2012/09/06/apple-to-drop-iphone-3gs-introduce-8-gb-iphone-4s-next-week/

post #6 of 31
Quote:
Originally Posted by 1983 View Post

Has to be priced no higher than $349 to be a contract free high volume sales hit I reckon.


Many, many people on this forum said that the iPad mini needed to be no more than $249 to be a hit. I disagreed whole-heartedly. Their pricing suppositions proved to be very, very wrong. No offense to those who are strapped for cash, but if $50 spread over a 2-3 year life of a smartphone is too much to bear, he or she should seek out a different option.

For your sake, I hope you're right.
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For your sake, I hope you're right.
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post #7 of 31
Quote:
Her assumptions are based partly on checks within Apple's overseas supply chain.

Partly based on supply chain check but mostly her assumptions are SWAG. Scientific Wild As* Guessing.

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"A common mistake that people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools." Douglas Adams

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post #8 of 31
Quote:
Originally Posted by 1983 View Post

Has to be priced no higher than $349 to be a contract free high volume sales hit I reckon.[/quote

It's an iPhone. If it's a new non-old model they'll get away with $399 in the marketplace.
Citing unnamed sources with limited but direct knowledge of the rumoured device - Comedy Insider (Feb 2014)
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Citing unnamed sources with limited but direct knowledge of the rumoured device - Comedy Insider (Feb 2014)
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post #9 of 31
Quote:
Originally Posted by noirdesir View Post

The iPhone 3Gs was sold unlocked for $375 until last September:

http://www.macrumors.com/2012/09/06/apple-to-drop-iphone-3gs-introduce-8-gb-iphone-4s-next-week/

Yes, but that wasn't a NEW phone. This would be a $399 new phone.
Citing unnamed sources with limited but direct knowledge of the rumoured device - Comedy Insider (Feb 2014)
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Citing unnamed sources with limited but direct knowledge of the rumoured device - Comedy Insider (Feb 2014)
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post #10 of 31
Quote:
Originally Posted by Realistic View Post

Partly based on supply chain check but mostly her assumptions are SWAG. Scientific Wild As* Guessing.

 

So very true.

post #11 of 31

So, somebody who is so broke, that they can't afford the regular iPhone, which was as cheap as $579 at T-Mobile recently, is going to spend $399 on a low-end, compromised model instead? Well, ok...............1oyvey.gif

post #12 of 31
Quote:
Originally Posted by 1983 View Post

Has to be priced no higher than $349 to be a contract free high volume sales hit I reckon.

 

The problem with all this is that all those analysts telling Apple what to do have never owned or run a business in their miserable lives. That's the same problem with the advice given by the above poster and others like him. I'm absolutely sure Apple has the brain power available to analyze their business and what they want to do with it. Long ago I was in the Rotrary Club with a professor of business at Southern Illinois University at Edwardsville, Illinois. He had decided to open a sports bar and grill to show his students what running a business was really like.

 

It lasted about a year and closed.

post #13 of 31

399 and call it low end?

 

F*ck you, analyst morons.

 

There's nothing low end on an iPhone, or any other phone at 399. These analysts and most consumers are always so retarded. If Apple releases an iPhone that does space traveling and calls it 5S, it will be a disappointment. Call it 6 and change nothing, it will be a hit. 

post #14 of 31

$399? That's believable. I'm all for it. It'll shut up the people who demand a $199 iPhone, at least.

post #15 of 31
Quote:
Originally Posted by Tallest Skil View Post

$399? That's believable. I'm all for it. It'll shut up the people who demand a $199 iPhone, at least.

I demand a 199 dollar iPhone with qwerty physical keyboard.

 

If Apple doesn't release one, they better pray to survive another year.

Oh, they are innovating 0. If they don't release a qwerty iPhone, I will sell my macbook air for an ASUS zenbook.

post #16 of 31
And we should believe anything this person says? What's her angle?
post #17 of 31
If apple releases a new low cost phone with the same internals as the 4, WS would cheer. If they release the 4 at the same price, WS will cry.
post #18 of 31
Quote:
Originally Posted by AppleInsider View Post

Katy Huberty of Morgan Stanley

Katy again, the Digitimes of analysts.
Quote:
Originally Posted by AppleInsider View Post

Based on her estimates, a low-end iPhone priced at $349 would be neutral to Apple's total gross margin dollars. And if Apple were to reach $393, a low-cost iPhone would be neutral to its current gross margin percentage.

A cheaper iPhone fails to take into account the effect that has been happening with their current setup. By selling the older models, they drive people to the higher models. A device like an iPad Mini doesn't do that quite so well. A cheaper iPhone would lower the average selling price significantly and they'd have to make that up by nearly doubling the volume of the lower models. They may well do this in markets where they would only want the cheapest smartphones but $350+ isn't going to do that because smartphones there start at around $100.

There is a problem with their current setup and that is that eventually they will have to sell an iPhone 5 at $450 and maybe the cost of goods won't be good for the margins, which is likely why they usually have to drop to 8GB. Having a setup with a cheap model and premium model allows them to predict their margins better. I think it will be harder to market though. What do they call the crappy one?
post #19 of 31
Quote:
Originally Posted by Carthusia View Post


Many, many people on this forum said that the iPad mini needed to be no more than $249 to be a hit. I disagreed whole-heartedly. Their pricing suppositions proved to be very, very wrong. No offense to those who are strapped for cash, but if $50 spread over a 2-3 year life of a smartphone is too much to bear, he or she should seek out a different option.

It really isn't that simple. One has to balance the price of a low end iPhone against what is currently offered in the mainstream iPhone. Price it too high and people will dismiss it in favor of the low entry point of an on contract phone. Of course much of that depends upon exactly what features the low end model has.

I really think that an off contract, low end iPhone could do wonderful things for Apple. It is about having real options instead of this years model or last years.
post #20 of 31
Quote:
Originally Posted by Apple ][ View Post

So, somebody who is so broke, that they can't afford the regular iPhone, which was as cheap as $579 at T-Mobile recently, is going to spend $399 on a low-end, compromised model instead? Well, ok...............1oyvey.gif

It's wouldn't be expected to be treated as "low end". Mid-priced.

 

Anyway, most consumers don't do a lot of analysis and hang around rumor boards finding out what phone they want. They see a price and they grab it. Especially in  parts of the world that can't or won't spend $700 on a phone.

post #21 of 31
Quote:
Originally Posted by Apple ][ View Post

So, somebody who is so broke, that they can't afford the regular iPhone, which was as cheap as $579 at T-Mobile recently, is going to spend $399 on a low-end, compromised model instead? Well, ok...............1oyvey.gif

I wouldn't characterize people interested in this phone in the manner you just did. I'd seriously consider such a phone as a few years of using both my iPad and an iPhone has taught me a few things. I only need a few features from the iPhone as my regular use now focuses on the iPad. The reality is a high end iPhone with the corresponding contract is a waste of money for me. If I can get a no contract iPhone with a decent data plan it may be good enough.

It is hard to say for certain that this low end iPhone would be good enough. Obviously we don't know all of the details. The thing is such an iPhone could save me enough money each year to basically cover my iPad purchases. Or close to it depending upon which iPad I buy. The goal would be to save at least $40 bucks a month. Of course this depends on finding a carrier that wants to offer a good deal on such a phone. Personally I'd like to see the phone come in under $350 but hey you never know. In any event it is the contract that causes one problems.

Now you may ask why I'd want to save money in this way. It is pretty simple really, I use my iPad far more than I use my iPhone right now. In fact with some struggle I could get buy with just a few apps on the unit. IPad has had a big impact on how I see the iPhone in my life. As such when it comes time to upgrade my iPhone 4 I will be looking at total costs far more closely than in the past. I might even change carriers to get low cost basic coverage. You need to realize that over the course of a few years iPhones end up costing an individual a lot of money. If I'm going to spend that money, with a cellular carrier, I'd much rather it go to support of an iPad.
post #22 of 31
Quote:
Originally Posted by pfisher View Post

It's wouldn't be expected to be treated as "low end". Mid-priced.
The obsession that some have with terms here is just asinine. All such a machine is is just another model. Anybody's obsessing over positioning of the phone and expressing the cheapness of others is simply an ass. Would these people be so quick to criticize people that drive electric cars which by the way is an example of a person having non mainstream priorities.
Quote:
Anyway, most consumers don't do a lot of analysis and hang around rumor boards finding out what phone they want.
I think you are very wrong here. The expense of a cell phone is a common complaint these days. This is especially the case if an individual will only leverage certain apps on the machine. People shop because for most a cell phone isn't a status symbol.
Quote:
They see a price and they grab it. Especially in  parts of the world that can't or won't spend $700 on a phone.
It is the combination of the price and its off contract nature. Given decent plans from the various carriers such a phone could save people large sums of money. This can't be dismissed as each individual has his own priorities. I know of people that allocate every cent they can to a sail boat, some for trips to Vegas and others fancy stereo equipment. It is all about personal priorities.
post #23 of 31
Quote:
Originally Posted by wizard69 View Post


The obsession that some have with terms here is just asinine. 

 

Check out the title of the thread. It says low-end right there.

 

And I still don't see what makes a $399 low end Apple phone attractive when a real iPhone only costs slightly more. The main cost of owning a phone goes towards monthly fees for talktime/data usage, not the phone itself.

post #24 of 31
Quote:
Originally Posted by 1983 View Post

Has to be priced no higher than $349 to be a contract free high volume sales hit I reckon.

 

 

depend on the market target.  For an unlock phone in develop countries, 300 to 400 is ok.  For emerging markets its still too expensive.  At 399$ they could minic the look if the iPhone 5.  Maybe the plastic cover leaks we saw are for the emerging markets, something price in the $100 to $200 range.

post #25 of 31
Quote:
Originally Posted by herbapou View Post


depend on the market target.  For an unlock phone in develop countries, 300 to 400 is ok.  For emerging markets its still too expensive.  At 399$ they could minic the look if the iPhone 5.  Maybe the plastic cover leaks we saw are for the emerging markets, something price in the $100 to $200 range.

Apple will not sell an unlocked phone for $200.
post #26 of 31
Well she just reposted everything i have said in the last 12 months. I still hope the cheaper iPhone model will be a larger screen version as well.

There are only two kind of people in this world.

Those who dont understand Apple and those who misunderstood Apple.

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There are only two kind of people in this world.

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post #27 of 31
The 4S is currently sold with 16GB. Highly likely the iPhone 5 will be sold with 16GB as well when it gets dropped to $549

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post #28 of 31

why does Apple need to grow it's user base? with only 16% of the worldwide smartphone market, they already have the majority of developer support and better quality apps.

 

an increased user base means increased support costs.

post #29 of 31
At $399 we're talking about a device that can run regular iPhone apps. I wouldn't call it low-end though. For a true low end phone it better be around $149 or something.
post #30 of 31
Quote:
Originally Posted by OllieWallieWhiskers View Post

why does Apple need to grow it's user base? with only 16% of the worldwide smartphone market, they already have the majority of developer support and better quality apps.

 

an increased user base means increased support costs.

I think it's for fear that the others will take them and tie them to Google or Microsoft, and ten years from now when the entry level people are getting richer they're already too tied to other services to change to Apple. Long term rhetorics.

post #31 of 31
Releasing a cheap (not so cheap at $399 anyway!) plastic low quality iPhone model would be Apple death sentence.. If Tim Cook releases this crap he clearly is a competitors spy paid to kill Apple.

And in fact the iPad Mini hurt iPad sales badly, even dumber how Tim Cook released the iPad4.. just like it was nothing new and focused everything on the iPad Mini.

Apple doesn't need any cheap iPhone model ! Apple must not be turned into an Android style crap manufacturer.
And for $399 anyone can buy iPhone4 already...
Apple should just discount the iPhone4s and iPhone5 more and that's it.
Release a new model and discount more the previous year one. Period.
Why wasting precious R&D and manufacturing resources to build and sell a new cheap plastic iPhone lacking features? What will they do ? Remove the camera just like with the new iPod Touch 16GB nonsense which is only $70 cheaper than the 32GB version with the camera ?

Tim Cook and his gang must be fired before they destroy Apple completely!
An engineer, a technician inside Apple must become the new CEO, someone able to push Apple to the limits just like Steve Jobs was doing.
Apple must not try to follow competitors! Apple must lead the market !
Now Apple has no less than 10 to 15 times the money it had when Steve Jobs released the iPhone.. and double that since the first iPod at least.. so there is no excuse to delay releasing outstanding products using new technology that Apple has the resources to build and mass produce.
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