Apple seen introducing mid-range contract-free $350 iPhone in Sept.

Posted:
in iPhone edited January 2014
Apple will finally address the huge pre-paid mobile phone market in September when the company releases a mid-range, contract-free iPhone, one Wall Street analyst believes.



"It's time for a mid-range iPhone," analyst Chris Whitmore with Deutsche Bank declared in a note to investors on Monday. He believes Apple will offer a lower-end iPhone priced between $300 and $500 paired with a pre-paid voice offering.



Whitmore noted that of the addressable market of 1.5 billion mobile customers worldwide, two-thirds of those are pre-paid users. He sees a so-called "iPhone 4S," released alongside an anticipated fifth-generation iPhone, as a new category of device that would help Apple address that market.



If Apple were to price this "iPhone 4S" at $349, Whitmore estimates that Apple could have the product be incremental to its corporate gross margin without negatively impacting profitability.



"Apple shipped (about 87 million) units over the past 2 years which suggests it has reached only 6% penetration of its current addressable subscribers," Whitmore wrote. "Looking forward, we believe Apple has room to run both in terms of greater market penetration as well as incremental carrier additions going forward."



Whitmore sees an "iPhone 4S" that would look a lot like the low-end iPod touch. He estimates that an unlocked iPhone priced at $649 has a manufacturing margin of 70 percent, while the $229 low-end iPod touch has 38 percent margins.



"Using this framework, we believe an 8GB iPod touch with an RF module could be priced ~$350 (unlocked without a contract) and still generate healthy manufacturing margins of ~53%," he said.







Speculation of a contract-free entry-level iPhone geared toward the huge global prepaid market is of course nothing new. Just last week, a different analyst stoked the fire by declaring that a "mini iPhone" would give Apple a larger piece of a $70 billion worldwide market.



Wall Street watchers believe that a cheaper iPhone would be a meaningful way for Apple to expand the market of its smartphone business. Surveys based in China, where prepaid subscribers are the majority, show that hardware cost, service plan cost and upfront payment are the three largest hurdles, respectively, to iPhone adoption.



In addition to speculation and encouragement, there have also been media reports that have suggested Apple is working on a cheaper iPhone. In February, The New York Times revealed that Apple has looked into building a cheaper iPhone, but rebutted reports from The Wall Street Journal and Bloomberg that claimed the company is planning to release a smaller model about half the size of the iPhone 4.
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Comments

  • Reply 1 of 87
    jakevin.jakevin. Posts: 71member
    This kind of makes sense I suppose with all these conflicting reports about 'iPhone 5' and 'iPhone 4S' - on one hand we have a brand new design with completely new features, and on the other a phone which will look similar to the iPhone 4 and be merely an evolutionary upgrade.



    With recent news of a China Mobile iPhone as well, it seems likely Apple will have to cater for a cheaper device in that market and frankly why wouldn't Apple expand its iPhone offerings beyond merely one device.



    Now is the time. A 3" iPhone 4S and a 4"+ iPhone 5. Come on Apple, don't tell me we will have 'waited' 15 months for nothing, or rather an extra 3 months for a mere evolution to a revolutionary device.
  • Reply 2 of 87
    Prepaid Mobile is the way to go in Countries Like India and China.



    Apple Released Iphone 3GS in India This week for $450 (Unlocked)...For a 2 year old device this is still pricey by around $75-$100.



    If they able to relase Iphone 4 for this price that will be Great (Once I5 released)
  • Reply 3 of 87
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by jakevin. View Post


    This kind of makes sense I suppose with all these conflicting reports about 'iPhone 5' and 'iPhone 4S' - on one hand we have a brand new design with completely new features, and on the other a phone which will look similar to the iPhone 4 and be merely an evolutionary upgrade.



    With recent news of a China Mobile iPhone as well, it seems likely Apple will have to cater for a cheaper device in that market and frankly why wouldn't Apple expand its iPhone offerings beyond merely one device.



    Now is the time. A 3" iPhone 4S and a 4"+ iPhone 5. Come on Apple, don't tell me we will have 'waited' 15 months for nothing, or rather an extra 3 months for a mere evolution to a revolutionary device.



    I'd think the iPhone 4 base design will hold for the next iteration and that a plastic-backed iPhone with "modern" components could be used for a $350 model. For instance, the same display panel in the iPod Touch, with A4, etc.
  • Reply 4 of 87
    In the future everyone will have an iPhone for fifteen minutes...

    (with apollogies to Andy Warhol)
  • Reply 5 of 87
    noirdesirnoirdesir Posts: 1,027member
    Quote:
    Originally Posted by AppleInsider View Post


    He estimates that an unlocked iPhone priced at $649 has a manufacturing margin of 70 percent, while the $229 low-end iPod touch has 38 percent margins.



    "Using this framework, we believe an 8GB iPod touch with an RF module could be priced ~$350 (unlocked without a contract) and still generate healthy manufacturing margins of ~53%," he said.



    This was clear to anybody looking at the price difference between an iPhone 4 (unlocked, 32 GB) and an iPod touch (4th generation, 32 GB), but this 70% raw margin on the iPhone is really one of the best money-making machines currently around.

    Think of it, do you know any volume product that has 70% profit margins (and costing three figures)? And that carriers hiding that profit margins in monthly fees is the only real reason the iPhone has almost twice the profit margin of an iPod touch. Force carriers to simply mark on their monthly bill what of it is used to re-pay the loan they have you to purchase the phone (and force them to put a time limit on this) and suddenly handsets might actually be compared on price as well.
  • Reply 6 of 87
    takeotakeo Posts: 414member
    I would LOVE to have an iPhone that only made calls and synced contacts and nothing else... for less than half the weight, size and price. I don't need to carry around a computer in my pocket 24/7. I'm a freelancer but I spent 95% of my time at my iMac working. I don't need web and email and angry birds for the one hour that I might be away from my desk. And if I DO need web and email (for a meeting let's say)... I'll take along my iPad or MacBook Air. For now, I'm suffering with my crappy RAZR. Can't bring myself to get an iPhone. Too heavy. Too much. Don't need it. Hopefully this mid-range rumor is not just a cheaper iPhone 4 but a whole new form factor.
  • Reply 7 of 87
    anonymouseanonymouse Posts: 6,558member
    Predicting what Apple will do based on market analysis is like forecasting the weather based on whether it rained last week.
  • Reply 8 of 87
    brutus009brutus009 Posts: 356member
    A cheap "mid-range" iPhone would dilute the product image, causing Apple to eventually appear no different than Dell or Acer in the eyes of the consumer.



    Apple doesn't need market saturation to empower the brand name recognition that drives revenue for those companies. I sincerely hope Apple can find a different method to address the pre-paid market, assuming they even feel the need to enter that market.
  • Reply 9 of 87
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by brutus009 View Post


    A cheap "mid-range" iPhone would dilute the product image, causing Apple to eventually appear no different than Dell or Acer in the eyes of the consumer.



    Apple doesn't need market saturation to empower the brand name recognition that drives revenue for those companies. I sincerely hope Apple can find a different method to address the pre-paid market, assuming they even feel the need to enter that market.



    Sure, you don't want to dilute your brand, but if you have sufficiently saturated a market tier you have to move to grow the brand. Even as more people move to smartphones their is even more need to respond to these dumbphone to smartphone switchers.



    Growing the iPhone into a new model is expected. We can see this with the iPod and Mac. I think we can assume Apple's helped their AppleTV brand, revenue, and profit with the $99 version so sometimes it can be good for business.



    They are already going for this with the $49 iPhone 3GS on AT&T which is why I think this will be basically be an iPhone 4 from a component standpoint. Can you see how the iPhone 3GS would likely be about $350 out of contract right now? I can.
  • Reply 10 of 87
    So your job is to watch Apple and you come up with this? He obviously doesn't understand Apple. They'll never go for subpar.
  • Reply 11 of 87
    asdasdasdasd Posts: 4,950member
    Quote:
    Originally Posted by brutus009 View Post


    A cheap "mid-range" iPhone would dilute the product image, causing Apple to eventually appear no different than Dell or Acer in the eyes of the consumer.



    Apple doesn't need market saturation to empower the brand name recognition that drives revenue for those companies. I sincerely hope Apple can find a different method to address the pre-paid market, assuming they even feel the need to enter that market.



    And yet there are cheap iPods, and cheap macs. You can keep your brand superiority by buying the more expensive items.
  • Reply 12 of 87
    asdasdasdasd Posts: 4,950member
    Quote:
    Originally Posted by markvdrheijden View Post


    So your job is to watch Apple and you come up with this? He obviously doesn't understand Apple. They'll never go for subpar.



    Who said "sub-par". This is more expensive than an iPod touch which is twice the machine as a iPhone 3GS. Well 35% more the machine.
  • Reply 13 of 87
    djmikeodjmikeo Posts: 178member
    Quote:
    Originally Posted by brutus009 View Post


    A cheap "mid-range" iPhone would dilute the product image, causing Apple to eventually appear no different than Dell or Acer in the eyes of the consumer.



    Apple doesn't need market saturation to empower the brand name recognition that drives revenue for those companies. I sincerely hope Apple can find a different method to address the pre-paid market, assuming they even feel the need to enter that market.



    I'd almost agree with you, except, that didn't happen when Apple introduced lower priced models of the iPod, starting with the iPod Mini. As long as the quality of the phone is in keeping with Apple's strict standards, this should not be a problem. This would be a great thing for teenagers, as I'm gonna guess that they may lose or damage phones more often, although I am just speculating, and this would make a less expensive replacement than $650.



    Then again, I don't see a problem with making the current 3GS model contract free. It surprisingly is doing very well on AT&T at $49 with a contract. This would have at least a 50% profit margin, as the phone's original build cost was around $178 back in 2009. (iSupply Estimate)
  • Reply 14 of 87
    brutus009brutus009 Posts: 356member
    Quote:
    Originally Posted by solipsism View Post


    They are already going for this with the $49 iPhone 3GS on AT&T which is why I think this will be basically be an iPhone 4 from a component standpoint. Can you see how the iPhone 3GS would likely be about $350 out of contract right now? I can.



    But there is still a huge subsidy there.

    16GB iPhone 4 goes from 650 to 200; a $450 difference.

    That means an 8GB 3Gs is still $500 out of contract.

    Thre's nothing mid-range about that.



    So to answer your question: no, I can't really see it, not given everything that's currently on the table.



    As markvdrheijdn just wrote, Apple won't go sub-par. If they enter the pre-paid market, it will be because they have a unique solution that compels the consumer, not just some old tech lying around.
  • Reply 15 of 87
    wigginwiggin Posts: 2,258member
    Quote:
    Originally Posted by Takeo View Post


    I would LOVE to have an iPhone that only made calls and synced contacts and nothing else... for less than half the weight, size and price. I don't need to carry around a computer in my pocket 24/7. I'm a freelancer but I spent 95% of my time at my iMac working. I don't need web and email and angry birds for the one hour that I might be away from my desk. And if I DO need web and email (for a meeting let's say)... I'll take along my iPad or MacBook Air. For now, I'm suffering with my crappy RAZR. Can't bring myself to get an iPhone. Too heavy. Too much. Don't need it. Hopefully this mid-range rumor is not just a cheaper iPhone 4 but a whole new form factor.



    I'll take one of those, too! Actually something with the functionality of the previous generation iPod nano (play media, sync contacts/calendars), and about that same screen size, with a phone added would be perfect. They could even make it a touch screen if they wanted. It would be much better than the tiny touch screen on the current [crippled] nano. They could extent the length of the nano and make it a flip phone. Lots of options for making a "feature" phone to address the mid-range and pre-paid markets.
  • Reply 16 of 87
    asdasdasdasd Posts: 4,950member
    Quote:
    Originally Posted by brutus009 View Post


    But there is still a huge subsidy there.

    16GB iPhone 4 goes from 650 to 200; a $450 difference.

    That means an 8GB 3Gs is still $500 out of contract.

    Thre's nothing mid-range about that.



    Nobody is saying that is mid-range. It is pricey.



    Quote:

    So to answer your question: no, I can't really see it, not given everything that's currently on the table.



    Thats a non-sequitor from your previous argument. You are merely pointing out that 3Gs is now expensive, so it wont be cheap ( if it is to be the cheap model).



    Quote:

    As markvdrheijdn just wrote, Apple won't go sub-par.



    As I wrote, sub-par != cheap. cheap != sub-par



    Quote:

    If they enter the pre-paid market, it will be because they have a unique solution that compels the consumer, not just some old tech lying around.



    They *may* have a different phone. More likely a re-branding. The 3GS could be slightly re-designed, use a better processor, and called something else, thats good enough. Making it smaller ( i.e. a mini) causes far more headaches than just using something similar to the 3GS design.
  • Reply 17 of 87
    unicronunicron Posts: 154member
    Just because analyists *want* it to happen, doesn't mean it's going to. Is any one at Apple really thinking, "Gosh if only we could see more iPhones! But for a lower profile margin, with brand diluting features!"



    Yeah, a mid-range iPhone would be a re-packaged 3GS.



    How else would Apple make a midrange model? Less features? Like what — less touch enabled? No Bluetooth/WiFi radio? 4GB Memory? At the volume Apple buys, NAND memory and BT/WiFi chips have got to be dirt cheap — so removing those would have minimal impact on costs, and severely impact the usability.



    A smaller screen would have to have the same pixel dimensions as the iPhone 3G or iPhone 4 — which would mean smaller icons and UI elements to touch.



    A less capable iPhone simply isn't an iPhone!
  • Reply 18 of 87
    brutus009brutus009 Posts: 356member
    Quote:
    Originally Posted by asdasd View Post


    And yet there are cheap iPods, and cheap macs. You can keep your brand superiority by buying the more expensive items.



    Still, the cheaper iPods and macs aren't just "cheaper" but rather a specialized subset of a given category. For example, an iPod Nano sacrifices functionality to keep the key features in a new form factor and ultimately achieves a lower price point.



    The problem with the "cheap" iPhone is this: which features get scrapped to differentiate the pre-paid iPhone from the "full-featured" iPhone? What can Apple do to cut costs while maintaining the user experience?
  • Reply 19 of 87
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by brutus009 View Post


    But there is still a huge subsidy there.

    16GB iPhone 4 goes from 650 to 200; a $450 difference.

    That means an 8GB 3Gs is still $500 out of contract.

    Thre's nothing mid-range about that.



    You really think AT&T is paying Apple $500 ($450 subsidy + $49 subsidized price) for an 8GB iPhone 3GS?





    If the ASP is about $625 and we only consider the iPhone 4's (which favours you) of the 16GB and 32GB capacity which have a subsidized price of $200 and $300 you only have about $300 subsidy. Using that model we have $300 + $49 = $349.



    The US market makes for a good measure but you shouldn't look at markets with strong smartphone saturation for the greatest push from Apple in this area. China, India, Brasil and other such countries are where I can see this being the biggest hit.
  • Reply 20 of 87
    asdasdasdasd Posts: 4,950member
    Quote:
    Originally Posted by brutus009 View Post


    Still, the cheaper iPods and macs aren't just "cheaper" but rather a specialized subset of a given category. For example, an iPod Nano sacrifices functionality to keep the key features in a new form factor and ultimately achieves a lower price point.



    The problem with the "cheap" iPhone is this: which features get scrapped to differentiate the pre-paid iPhone from the "full-featured" iPhone? What can Apple do to cut costs while maintaining the user experience?



    I am really talking about the difference in price between an iPod touch and an iPhone.



    Which features get scrapped? none. iOS 5 runs on the 3GS.
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