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Building a cheap iPhone would be an 'insane idea' for Apple, Needham says

post #1 of 74
Thread Starter 
It would be "impossible" for Apple to successfully build a cheap iPhone without doing lasting damage to the company's highly profitable and successful smartphone brand, analyst Charlie Wolf of Needham & Company believes.

iphone-5c-color-lineup.jpg


Wolf's thesis was presented on Wednesday in a note to investors, a copy of which was provided to AppleInsider. In it, the analyst went as far as to say that building a cheap iPhone to capture the low end of the smartphone market would be an "insane idea" for Apple, destroying the company's gross profits seen in its current strategy.

For example, to hit the so-called "sweet spot" of smartphone pricing in emerging markets, Apple would have to price a hypothetical cheap iPhone at around $350 without a carrier contract subsidy. If Apple were to target a hypothetical 40 percent gross margin with such a product, Wolf's estimates suggest the cheap iPhone would need a bill of materials at around $90 --?or less than half the bill-of-materials cost of high-end iPhones.

Reaching a $350 iPhone price point while maintaining 40% margins would be impossible for Apple, analyst Charlie Wolf believes.Wolf's estimates hinge on what he calculates to be a $120-per-phone "cost of goods sold" --?costs associated with the iPhone that are not included in the bill of materials. These costs include warranty expenses, freight, packaging, telephone support, licensing fees and more.

Apple's current mid-range handset, the iPhone 5c, sells starting at $99 with a new two-year service contract, or $549 unlocked and contract-free. Wolf's calculations suggest the bill of materials for that handset is $165, plus the aforementioned $120 cost of other goods sold.

A total $285 cost on a $550 smartphone would result in gross margins of 48.2 percent, based on Wolf's estimate.

Because of these figures, the analyst doesn't believe that Apple will change its iPhone pricing, even as the maturing smartphone market inevitably becomes saturated, limiting growth potential. Wolf also doesn't believe that carriers in markets like the U.S., where contract subsidies are common, would begin cutting back on those subsidies, as executives at AT&T have suggested they will.

"The evidence suggests that Android users are switching to the iPhone in far greater numbers than users switching from the iPhone," Wolf wrote. "In a saturated market, we believe, if anything, that the migration of Android users to the iPhone will accelerate, absent significant price cuts on Android phones. Obviously, growth will slow. But we don't believe it will stop."

iphone-5c-still2-20130910.jpg


Rumors of a so-called low-cost iPhone have persisted for years, but they picked up steam last year when numerous reports consistently claimed Apple was planning to debut a new plastic-backed iPhone. With last September's launch of the iPhone 5c, the hardware side of those rumors proved accurate, but the $549 entry price was not the aggressively priced handset some Wall Street watchers were expecting.

Instead, some investors had hoped that Apple would price its new iPhone model as low as $400 without a contract subsidy. Some observers still believe Apple should react to cheaper Android-based devices in the smartphone space, and aggressively move into a lower-priced market with a new hardware model.
post #2 of 74

What he's actually saying is that building a cheap iPhone while keeping the same profit margin wouldn't be viable. None of his arguments rule out Apple producing a cheap iPhone with lower margins (that's not to say that there aren't arguments against it, but this isn't one of them).

 

edit: The recent article on App Store revenues breaking $10 billion is relevant here - with a low-cost device, the profit wouldn't be made on the hardware. It would be made on app / software / music sales, and also through longer-term sales due to ecosystem lock-in (get them into the Apple ecosystem with a cheap iPhone, and because moving to Android would cost them all their apps etc. you're very likely to have them hooked). 

post #3 of 74

Another numbskull ANAL-yst giving his 2-cents, worthless as it is.

 

Apple will build an inexpensive iPhone when it can do so.  This means it has to be an iPhone - with all that it means.

 

Apple actually already has been selling an inexpensive iPhone.

 

The iPhone 3G, 4, and 5c have been selling for FREE with a contract on many carriers.  That is pretty cheap if ZERO is considered cheap.

post #4 of 74
but again wall street does not care if a company rips itself apart to gain the almighty no profit market share gold ring.
post #5 of 74
Quote:
Originally Posted by jameskatt2 View Post
 

Another numbskull ANAL-yst giving his 2-cents, worthless as it is.

 

Apple will build an inexpensive iPhone when it can do so.  This means it has to be an iPhone - with all that it means.

 

Apple actually already has been selling an inexpensive iPhone.

 

The iPhone 3G, 4, and 5c have been selling for FREE with a contract on many carriers.  That is pretty cheap if ZERO is considered cheap.

Apple is not selling cheap phones, the service providers are still buy the phone from apple at full price, or at some discounted price. Also, it could be that apple does not get the full value of the phone until the 2 yrs of the contract is up. Apple could be subsidizing some portion of the purchase over time.

 

At one time it was believed that apple was getting some portion of the data contract over time since they were the enablers of the service providers ability to sell more expensive data contracts. This is also why no mater what if you have an iphone you have to have data plan whether you bought the phone outright or not.

 

It is the service providers selling cheap iphone to get someone hooked on a 2 yrs or longer data contract. Which is worth $720 to the provider.

post #6 of 74
I do t know if it is impossible for a cheap iPhone but it's highly unlikely. Apple isn't going to use inferior parts just to attract third world customers.
post #7 of 74
Apples market is built on customer loyalty from a group of consumers who don't want to be click tracked ,halfwared, advertised to on part of the screen ,or be in the groove with alicia keys. just as tiffany ,Rolls,Mazarati,Rolex, ignores the timex,hugo and Kay jewelers customer Apple pays attention to the market where it has 100% of market share customers like me. What ever apple adds to its pile of users will stick and make it bigger the rest will chew on each others bones.
post #8 of 74
All Apple would need to do is take some of that unused reserve cash pile and expand the business into other areas such as mobile payments, cloud services or creating its own search engine and ad business. That way Apple could lower the price of some of its iPhones and still be able to boost revenue and offset some of those margin losses. Tim Cook needs to think outside of his little hardware only box. Android already owns the smartphone industry due to completely saturating the entire planet with Android devices. Apple has absolutely no room to grow iPhone sales and can never gain any market share against Android when every Android smartphone is half the price of an iPhone.

Tim Cook is just killing shareholders because he doesn't want to part with his personal cash hoard. Doing nothing with that money is not going to help either Apple or shareholders. The share price will continue to be driven down towards zero if he doesn't take that money and create additional revenue streams. No company needs to save $100 billion for a rainy day. Apple is so incompetent to simply let Google dominate the search engine business and the smartphone industry and not do anything to fight back. Meanwhile Google's value soars and Apple's value plummets. Tim Cook clearly does not know how to do anything to stop Apple from sinking.
post #9 of 74
I don't disagree that a cheaper iPhone would drop the profit margin for each iPhone, but just like with percent of market that isn't as important of a metric as pure profit.

So, the question that he should have asked was if it would be better for Apple to build and sell an iPhone for a lower margin if they increased number would lead to more overall profits.

As for those that contend that Apple couldn't make a cheaper iPhone and make a profit. I present the iPod Touch ($229) and the markup cost for adding cellular to an iPad ($130), both of which Apple makes a profit on. Thus, it is absurd to suggest that Apple couldn't marry these two things into an iPhone with a selling price of around $359 and sell it for a profit.
post #10 of 74

There are many ways to make the phone appears more affordable.  Current carrier subsidies are certainly most popular to reduce up-front cost to $199.  But if the Black Friday sale is any indication, I think store gift cards will be used more in the future to promote iPhones.  Free apps and iTunes gift cards would also work.

post #11 of 74
Apple should make a version of the 5C in black with 8GB of storage, a slightly lower res camera front and back, in a less elaborate packaging box, with no headphones or case included, and sell it exclusively in China, India and Africa for $299. Worth a shot.
post #12 of 74
Quote:
Originally Posted by DarkLite View Post

What he's actually saying is that building a cheap iPhone while keeping the same profit margin wouldn't be viable. None of his arguments rule out Apple producing a cheap iPhone with lower margins (that's not to say that there aren't arguments against it, but this isn't one of them).

edit: The recent article on App Store revenues breaking $10 billion is relevant here - with a low-cost device, the profit wouldn't be made on the hardware. It would be made on app / software / music sales, and also through longer-term sales due to ecosystem lock-in (get them into the Apple ecosystem with a cheap iPhone, and because moving to Android would cost them all their apps etc. you're very likely to have them hooked). 
How much profit did Apple make off that $10B though? I read somewhere that it was maybe $1-$3B max. I don't think Apple makes enough off services to cover cheaper hardware. Especially now that they're making all their software free.
post #13 of 74
Quote:
Originally Posted by heroinsmoker View Post

Apple should make a version of the 5C in black with 8GB of storage, a slightly lower res camera front and back, in a less elaborate packaging box, with no headphones or case included, and sell it exclusively in China, India and Africa for $299. Worth a shot.
At what benefit to Apple though? How is selling cheap phones to poor people a profitable business? If it was Android and a Windows OEMs would be making money hand over fist.
post #14 of 74

Everyone talking about alternative ways of recovering the cost of an iPhone don't understand what Charlie is saying. He's agreeing with Apple that a "cheap" iPhone is out of the question. He's on Apple's side not the crazy analysts who don't understand what Apple is all about.

 

On the other hand, the only way for Apple to "sell" an iPhone for less than $400 and retain some kind of profit margin would be to produce a totally different type of phone with brand new components. Everything on one chip, a different type of power source, and simplified manufacturing along with a minimum amount of licensing fees might allow them to produce a truly inexpensive, quality phone. Until then, we pay for what we get and let Samsung produce the bulk of the throw-away phones.

post #15 of 74
Quote:
Originally Posted by Constable Odo View Post

All Apple would need to do is take some of that unused reserve cash pile and expand the business into other areas such as mobile payments, cloud services or creating its own search engine and ad business. That way Apple could lower the price of some of its iPhones and still be able to boost revenue and offset some of those margin losses. Tim Cook needs to think outside of his little hardware only box. Android already owns the smartphone industry due to completely saturating the entire planet with Android devices. Apple has absolutely no room to grow iPhone sales and can never gain any market share against Android when every Android smartphone is half the price of an iPhone.

Tim Cook is just killing shareholders because he doesn't want to part with his personal cash hoard. Doing nothing with that money is not going to help either Apple or shareholders. The share price will continue to be driven down towards zero if he doesn't take that money and create additional revenue streams. No company needs to save $100 billion for a rainy day. Apple is so incompetent to simply let Google dominate the search engine business and the smartphone industry and not do anything to fight back. Meanwhile Google's value soars and Apple's value plummets. Tim Cook clearly does not know how to do anything to stop Apple from sinking.

Sinking?

 

Shut up. I doubt that someone that says what you said even has an house or sustains a family with his own cash.

Educate yourself.

post #16 of 74
On another front, analysts are also in general consensus that it would be disastrous for Mercedes Benz's brand and profitability to build and sell a car that competes head to head with the Toyota Corolla.

Maybe this time it's not really the analyst's fault that he needs to point out to the stupid segment of the investing public that this constant drumbeat for Apple to sell a cheap phone does not make any business sense whatsoever. Lord knows we have enough of those drumbeaters even on this forum.

Okay people, let me lay it out clearly: In a market like smart phones, tablets and PCs where the main differentiating feature is the software esp. the OS, the following has been proved by past experience:

1. No one will buy a cheap gimped product. (386SX, PC Jr., netbooks, 3rd World versions of Windows.)

2. A cheap or cheaper product will sell only if it can do essentially the same things that the more expensive version can.

3. But when you sell a cheap or cheaper product that does essentially what the more expensive product does, it kills the market for the more expensive (i.e. high margin) product. Notice, there is no significant market for high end Windows PCs. Anyone remember Northgate? Recall that among the first things Steve Jobs did when he returned to Apple was he killed the Mac clones.

Apple might be able to build a cheap iPhone and even get a decent margin out of it, but that will kill their high end, high margin, vastly more profitable smart phone line.
post #17 of 74
Quote:
Originally Posted by Constable Odo View Post

Android already owns the smartphone industry due to completely saturating the entire planet with Android devices.

What does Android "own" exactly? I haven't seen anything good come from all that market share. You'll notice how developers and accessory maker still flock to Apple even though they have a fraction of Android's market share. What does that tell you?

Market share makes a great headline... but there's no compelling story after that.

Quote:
Originally Posted by Constable Odo View Post

Apple has absolutely no room to grow iPhone sales and can never gain any market share against Android when every Android smartphone is half the price of an iPhone.

Apple sells more and more phones every year. And expensive phones at that. That's more important than how they rank on a market share chart.

Like I said before... market share isn't the trophy you think it is.

Quote:
Originally Posted by Constable Odo View Post

Apple is so incompetent to simply let Google dominate the search engine business and the smartphone industry and not do anything to fight back.

Google is an advertising company and they also have the most popular search engine.

Apple sells phones... a lot of phones.

What are we comparing again?

Quote:
Originally Posted by Constable Odo View Post

Tim Cook clearly does not know how to do anything to stop Apple from sinking.

There are dozens of companies who are actually sinking. Have you seen HTC lately?

So what is Apple doing wrong?
post #18 of 74

I agree it would be "insane." Just ask Nokia. Weren't they the world leader in the number of "dumb" phones, at one time?

 

The Walmart business model (sell a lot of crap, cheap!) is fun for a while. Everyone running around waiving reports of increases in market share, 

 

In reality, you're just wearing out your equipment, less and less money for R&D, less money for promotion while waiting for the inevitable, albeit slow, destruction of your business. Oh, and just before that, you hire an overpriced "store closing," "cost-cutting,"  "all-talk" CEO that puts the final nail in your coffin!

 

Hello, Dell, HP.

 

Best.


Edited by christopher126 - 1/8/14 at 7:26am
post #19 of 74
Quote:
Originally Posted by DarkLite View Post
 

What he's actually saying is that building a cheap iPhone while keeping the same profit margin wouldn't be viable. None of his arguments rule out Apple producing a cheap iPhone with lower margins (that's not to say that there aren't arguments against it, but this isn't one of them).

 

edit: The recent article on App Store revenues breaking $10 billion is relevant here - with a low-cost device, the profit wouldn't be made on the hardware. It would be made on app / software / music sales, and also through longer-term sales due to ecosystem lock-in (get them into the Apple ecosystem with a cheap iPhone, and because moving to Android would cost them all their apps etc. you're very likely to have them hooked). 

 

One argument would be a cheaper iPhone would rob sales of higher end models. As long as Apple is growing its business, there is no reason to sacrifice margins. 

 

I also don't think Apple wants to be a Google or Amazon that sells a device with low profit margins hoping to make a profit on service sales. It was reported recently that music sales are stagnant, and how much money does Apple really make off app sales? Most apps are free to which Apple pays a cost in terms of bandwidth to deliver. 

post #20 of 74

Well, unfortunately, we saw in the 80s what happens when Apple preserves its margins and profits above all else -- the momentum of a much cheaper, open ecosystem, however inferior, is hard to stop. As a pure defensive play, increasing marketshare will have other benefits - App developers and third-party support (like car manufacturers) will always chase the largest market. Selling a $299 phone that costs $130 to make is still a pretty good profit, and a generation of kids might grow up in the Apple fold.

post #21 of 74
Quote:
Originally Posted by Constable Odo View Post

All Apple would need to do is take some of that unused reserve cash pile and expand the business into other areas such as mobile payments, cloud services or creating its own search engine and ad business. That way Apple could lower the price of some of its iPhones and still be able to boost revenue and offset some of those margin losses. Tim Cook needs to think outside of his little hardware only box. Android already owns the smartphone industry due to completely saturating the entire planet with Android devices. Apple has absolutely no room to grow iPhone sales and can never gain any market share against Android when every Android smartphone is half the price of an iPhone.

Tim Cook is just killing shareholders because he doesn't want to part with his personal cash hoard. Doing nothing with that money is not going to help either Apple or shareholders. The share price will continue to be driven down towards zero if he doesn't take that money and create additional revenue streams. No company needs to save $100 billion for a rainy day. Apple is so incompetent to simply let Google dominate the search engine business and the smartphone industry and not do anything to fight back. Meanwhile Google's value soars and Apple's value plummets. Tim Cook clearly does not know how to do anything to stop Apple from sinking.

 

Honestly Odo, you're just getting tiresome.  You're just a worn out old bag of one-sided half-truths, cherry picked facts, and illogical conclusions.  So you got excited out of your wits, poured all your savings into AAPL at 695 and got burned when it came down to more realistic levels.  Tim Cook is one of the few CEOs who don't let the share price unduly influence their decision making.  And if that drives off short horizon investors, so much the better.  If you think Google is really such a great company, then put your savings there and earn back what you lost in AAPL when you got swept up in the tide of euphoria.  No shame in that, even professional hedge fund investors succumbed to the irrational exuberance over AAPL.

post #22 of 74
Quote:
Originally Posted by heroinsmoker View Post

Apple should make a version of the 5C in black with 8GB of storage, a slightly lower res camera front and back, in a less elaborate packaging box, with no headphones or case included, and sell it exclusively in China, India and Africa for $299. Worth a shot.

No it's not. Apple isn't going to downgrade an existing product.

Also please ignore Odo. He's been off his meds.
post #23 of 74
Quote:
Originally Posted by tundraboy View Post
 

 

Honestly Odo, you're just getting tiresome.  You're just a worn out old bag of one-sided half-truths, cherry picked facts, and illogical conclusions.  So you got excited out of your wits, poured all your savings into AAPL at 695 and got burned when it came down to more realistic levels.  Tim Cook is one of the few CEOs who don't let the share price unduly influence their decision making.  And if that drives off short horizon investors, so much the better.  If you think Google is really such a great company, then put your savings there and earn back what you lost in AAPL when you got swept up in the tide of euphoria.  No shame in that, even professional hedge fund investors succumbed to the irrational exuberance over AAPL.

Tundra, you should "cut & paste" this and put it up as the first post of all future Ai articles about AAPL!  : )

 

(Maybe, sans the first sentence.)    : )

 

Best.

post #24 of 74
The question that continually pops up for me, is "what is the value of customers whose primary deciding factor is price?". On average, customer that can't currently afford an iPhone, or who are driven by price won't spend money on Apps, music, video, etc.

Apple would see higher costs to support these customers who would use a higher percentage of the "free" portion of the echo system - just like what is seen in the Android world.
post #25 of 74
Destroying a premium brand's reputation is easy. I'm an old timer. I remember when, in the 60's and 70's, SONY was considered the top of the line. It could charge a premium, since its products were that good. While Japanese brands in general were considered better, SONY was the top.

Wanted a Walkman? Sony,s the best. Then, Sony got greedy and wanted to capture the middle and bottom in the 80s and 90d. It started selling crappy electronics for cheap. I could nt believe, for example, that I could get a Sony cassette player for only $40. But I could, and it was crap like everything else priced that low.

Anyone here under the age of 40 that thinks SONY is the premium Japanese brand? I didn't think so. You just think I'm nuts. But it was true, past tense.

Sony is like every other brand, though it doesn't realize it. It flatters itself with Sonystyle stores and the like. It doesn't realize that the customers who still think of it that way are either dead, or in their 70s.

So go ahead Apple.
post #26 of 74
Quote:
Originally Posted by Constable Odo View Post

All Apple would need to do is take some of that unused reserve cash pile and expand the business into other areas such as mobile payments, cloud services or creating its own search engine and ad business. That way Apple could lower the price of some of its iPhones and still be able to boost revenue and offset some of those margin losses. Tim Cook needs to think outside of his little hardware only box. Android already owns the smartphone industry due to completely saturating the entire planet with Android devices. Apple has absolutely no room to grow iPhone sales and can never gain any market share against Android when every Android smartphone is half the price of an iPhone.

Tim Cook is just killing shareholders because he doesn't want to part with his personal cash hoard. Doing nothing with that money is not going to help either Apple or shareholders. The share price will continue to be driven down towards zero if he doesn't take that money and create additional revenue streams. No company needs to save $100 billion for a rainy day. Apple is so incompetent to simply let Google dominate the search engine business and the smartphone industry and not do anything to fight back. Meanwhile Google's value soars and Apple's value plummets. Tim Cook clearly does not know how to do anything to stop Apple from sinking.

 

I hate to tell you, but Apple has already committed to buying back 50 billion worth of its shares on borrowed money, and is paying the largest dividend. It also is involved in lots of lawsuits where it might actually have to spend some of the money if it loses, and is in a highly competitive industry where have cash is important. There is nothing wrong with Apple being conservative about giving money to shareholders. Apple is on record saying it evaluates on a yearly basis its cash dispersal policy to shareholders. That is fiscally prudent, and as a long term shareholder I support that policy.

 

Moreover, Apple should not try to appease Wallstreet as its valuation of Apple simply is not reasonable. Further, Wallstreet's short term interests are not necessary in line with Apple's long term interests. Apple beat Google and Amazon in just about every metric, but in comparison the Street does not award it appropriately. Google does not pay any type of dividend, is not repurchasing any shares, and is sitting on over 50 billion in cash. Yet nobody is giving it a hard time about not paying a dividend and repurchasing shares. 

 

As far as long term plans go, who knows what Apple is working on. It is a highly secretive company that takes its time before rushing a product to market. Based on its history, I think it fair to say it is working on great stuff. 

 

Your view regarding Android is inconsistent. On one hand you erroneously state Android has all the market share, and on the other that Apple has not room to grow. 

 

With all that said, I see some areas Apple needs to improve. For instance, operating system interoperability. Apple should own vehicle with mobile device integration. To the extent it does not it is because it is not offering a solution that allows other operating systems to interact with its solution. Another example is messaging. iMessage and Facetime need better integration with competing operating systems. 

post #27 of 74
Quote:
Originally Posted by DarkLite View Post
edit: The recent article on App Store revenues breaking $10 billion is relevant here - with a low-cost device, the profit wouldn't be made on the hardware. It would be made on app / software / music sales, and also through longer-term sales due to ecosystem lock-in (get them into the Apple ecosystem with a cheap iPhone, and because moving to Android would cost them all their apps etc. you're very likely to have them hooked). 

 

The problem is that people who buy cheap phones don't buy apps, music or movies.  This is what Android developers have found out: the customers buying apps are the ones who bought high end phones that cost as much as an iPhone.  People who buy $50 Android phones don't purchase anything else besides pre-paid SIM cards.  Anyone thinking they will make up the low price of a cheap phone on subsequent media sales is on drugs, and not good ones, either.

post #28 of 74
Quote:
Originally Posted by DarkLite View Post

What he's actually saying is that building a cheap iPhone while keeping the same profit margin wouldn't be viable. None of his arguments rule out Apple producing a cheap iPhone with lower margins (that's not to say that there aren't arguments against it, but this isn't one of them).



 



edit: The recent article on App Store revenues breaking $10 billion is relevant here - with a low-cost device, the profit wouldn't be made on the hardware. It would be made on app / software / music sales, and also through longer-term sales due to ecosystem lock-in (get them into the Apple ecosystem with a cheap iPhone, and because moving to Android would cost them all their apps etc. you're very likely to have them hooked). 


 



I disagree with your second paragraph. App Store revenues are irrelevant. This is because people who buy cheap phones usually don't send money on apps, books, services, etc. The money lost on the cheap phone would never be recouped. There have been a few articles here and elsewhere, namely Macrumors, that show iOS devices dominate mobile web traffic, app dollars, and on-line shopping purchases.
post #29 of 74
Quote:
Originally Posted by DarkLite View Post
 

What he's actually saying is that building a cheap iPhone while keeping the same profit margin wouldn't be viable. None of his arguments rule out Apple producing a cheap iPhone with lower margins (that's not to say that there aren't arguments against it, but this isn't one of them).

 

edit: The recent article on App Store revenues breaking $10 billion is relevant here - with a low-cost device, the profit wouldn't be made on the hardware. It would be made on app / software / music sales, and also through longer-term sales due to ecosystem lock-in (get them into the Apple ecosystem with a cheap iPhone, and because moving to Android would cost them all their apps etc. you're very likely to have them hooked). 

 

Bad assumption there.  You are assuming that people who are willing to spend only $350 on a phone will buy the same amount of content as people buying $700 phones.  Bottom line is most people who buy $350 will not buy ANY APPS only FREE APPS.

post #30 of 74
This talk has been hashed out for how many years now. And Apple hasn't produced. Because they don't want to. They have even started 'we don't do cheap'. 2013 was supposed to be the year of us finally getting a 'cheap' iPhone for those emerging markets. We got the 5C and new payment schemes.

And yet the analysts haven't sorted out that it isn't going to happen. Do they really need Tim Cook etc to flat out say 'Dudes it isn't happening, SFTU%u2018 for them to get a clue

A non tech's thoughts on Apple stuff 

(She's family so I'm a little biased)

Reply

A non tech's thoughts on Apple stuff 

(She's family so I'm a little biased)

Reply
post #31 of 74
Quote:
Originally Posted by mknopp View Post

I don't disagree that a cheaper iPhone would drop the profit margin for each iPhone, but just like with percent of market that isn't as important of a metric as pure profit.

So, the question that he should have asked was if it would be better for Apple to build and sell an iPhone for a lower margin if they increased number would lead to more overall profits.

As for those that contend that Apple couldn't make a cheaper iPhone and make a profit. I present the iPod Touch ($229) and the markup cost for adding cellular to an iPad ($130), both of which Apple makes a profit on. Thus, it is absurd to suggest that Apple couldn't marry these two things into an iPhone with a selling price of around $359 and sell it for a profit.

 

Apple does not rely on iPod to make money. 
 
In 5 years we may see a 'cheap' iPhone........once the next form factor of mobile devices take off
post #32 of 74
Building market share is not a waste of time. Once you've swamped the world with your standard and ecosystem, it can fuel your future earnings. You obviously need to optimize market share for future profitability vs current margins on expensive gear but I'm pretty sure apple is doing that.
post #33 of 74
Who needs a phone? A $279 iPod Touch gets you into the iOS ecosystem. FaceTime and Skype if you really want to call.

"Apple should pull the plug on the iPhone."

John C. Dvorak, 2007
Reply

"Apple should pull the plug on the iPhone."

John C. Dvorak, 2007
Reply
post #34 of 74
Quote:
Originally Posted by heroinsmoker View Post

Well, unfortunately, we saw in the 80s what happens when Apple preserves its margins and profits above all else -- the momentum of a much cheaper, open ecosystem, however inferior, is hard to stop. As a pure defensive play, increasing marketshare will have other benefits - App developers and third-party support (like car manufacturers) will always chase the largest market. Selling a $299 phone that costs $130 to make is still a pretty good profit, and a generation of kids might grow up in the Apple fold.

Largest market, huh?

Developers and 3rd-party accessory makers already prefer Apple even though Android has had the most market share for years.

Why? Here's what you're forgetting about "Android" market share: it's made up of tons of phones, from dozens of manufacturers, across all price ranges and capabilities, and that are sold in many different countries.

I'm sure you look at Android's 80% market share and think "Holy crap! That's a huge number!"

It is a huge number on paper. But it's also an illusion.

How much of Android's phenomenal market share is made up of terrible phones sold in countries that barely have 3G access? All those $79 phones sold in developing nations won't be downloading a lot of apps or music. Nor will they be hooking into an automobile.

But on paper... those terrible phones get weighed the same as a high-end Android phone. Or an iPhone. A phone's a phone... right?

Clearly that's not the case. That's why developers ignore Android's phenomenal market share numbers... and focus on the iPhone. Market share isn't the trophy you think it is.

Think about it... 8 out of 10 smartphones sold today are running Android. And yet the iPhone still gets all the developer and 3rd-party attention.

I think that disproves your "largest market" theory...
post #35 of 74
Quote:
Originally Posted by heroinsmoker View Post
 

Well, unfortunately, we saw in the 80s what happens when Apple preserves its margins and profits above all else -- the momentum of a much cheaper, open ecosystem, however inferior, is hard to stop. As a pure defensive play, increasing marketshare will have other benefits - App developers and third-party support (like car manufacturers) will always chase the largest market. Selling a $299 phone that costs $130 to make is still a pretty good profit, and a generation of kids might grow up in the Apple fold.

There is already a generation of kids growing up in the Apple fold using the iPhones which were passed down from their parents.

 

Besides there are plans ahead to make owning the iPhones less painful in India and China.

post #36 of 74
Say you were a loyal BMW customer. How would you feel if BMW suddenly released a low end Beamer that cost less than a Honda Fit? It would degrade the brand.

What if Apple created a second brand for its cheap phone? Apple would be Lexus and have its new Toyota brand.

Naaaaah.

Apple is aspirational and high end.

I see Apple becoming a pricier but more elegant, more capable, and better integrated alternative to its competitors.
post #37 of 74

A lot of what you are saying is all true, for the time being. But look 5, 10 years out. The momentum of Android needs to be slowed. One way to do this is to not let billions of people get hooked into the Android ecosystem, and to try and create as many Apple users as you can. Sticking your head in the sand saying, "We're the best!" is not useful.

 

Without action, future car dashboards will run Android apps and sync flawlessly with your Google account. Future TVs will run Android apps and sync flawlessly with your Google account. And Apple will be making a lot of money selling pricey phones to 1-5% of the population, as the economies of scale with Android seduce plenty of people into that ecosystem.

 

I don't want to see that future happen.

post #38 of 74
Originally Posted by Constable Odo View Post
All Apple would need to do is take some of that unused reserve cash pile and expand the business into other areas such as mobile payments, cloud services or creating its own search engine and ad business. That way Apple could lower the price of some of its iPhones and still be able to boost revenue and offset some of those margin losses.

 

Right, but that’s evil and contrary to everything that Apple has ever done, so never bring it up again. We’ll get morons thinking it could actually happen.

Originally posted by Marvin

Even if [the 5.5” iPhone] exists, it doesn’t deserve to.
Reply

Originally posted by Marvin

Even if [the 5.5” iPhone] exists, it doesn’t deserve to.
Reply
post #39 of 74
Quote:
Originally Posted by nuttyappledude View Post

Building market share is not a waste of time. Once you've swamped the world with your standard and ecosystem, it can fuel your future earnings. You obviously need to optimize market share for future profitability vs current margins on expensive gear but I'm pretty sure apple is doing that.


Really? And what has 80% market share netted all of the Android manufacturers put together?

Answer: Far les profits than Apple's measly 15% world wide market share. That's what.

post #40 of 74
Quote:
Originally Posted by Constable Odo View Post

All Apple would need to do is take some of that unused reserve cash pile and expand the business into other areas such as mobile payments, cloud services or creating its own search engine and ad business. That way Apple could lower the price of some of its iPhones and still be able to boost revenue and offset some of those margin losses. Tim Cook needs to think outside of his little hardware only box. Android already owns the smartphone industry due to completely saturating the entire planet with Android devices. Apple has absolutely no room to grow iPhone sales and can never gain any market share against Android when every Android smartphone is half the price of an iPhone.

Tim Cook is just killing shareholders because he doesn't want to part with his personal cash hoard. Doing nothing with that money is not going to help either Apple or shareholders. The share price will continue to be driven down towards zero if he doesn't take that money and create additional revenue streams. No company needs to save $100 billion for a rainy day. Apple is so incompetent to simply let Google dominate the search engine business and the smartphone industry and not do anything to fight back. Meanwhile Google's value soars and Apple's value plummets. Tim Cook clearly does not know how to do anything to stop Apple from sinking.

 

There are signs they will be expanding to services.  Look at TouchID, Beacons, iRadio. 

 

You analysis of stock price is very short term.  Look at a five year graph:

 

Apple up 510%

Google up 261%

 

From Jan2010 to Jun2012 Google has been basically STUCK at $600 for 18 months.  Is Google really worth DOUBLE now as compared to Jun2012? 

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