RBC: Apple would only launch low-cost iPhone if it had 'category-killer' experience

Posted:
in iPhone edited January 2014
After a meeting with two of Apple's top executives, RBC Capital Markets analyst Mike Abramsky said the company's primary requirement for launching a lower-end iPhone is whether the handset would provide an "innovative, category-killer experience."



Abramsky revealed the information through a set of "key takeaways" from his meeting with Apple COO Tim Cook and CFO Peter Oppenheimer on Wednesday, though he did not provide any direct quotes from the two executives. "Apple?s primary criterion for launching a lower-end iPhone is an innovative, category-killer experience," he wrote.



Though those familiar with Apple's design philosophy and strategy may dismiss the statement as seemingly obvious, it does run against the grain of recent assertions that Apple would release a contract-free iPhone for primarily financial reasons. For instance, Deutsche Bank analyst Chris Whitmore set off a round of speculation in June when he speculated that "it's time for a mid-range iPhone," largely based on the assumption that Apple is looking to reach the pre-paid market, which makes up two-thirds of the world's 1.5 billion mobile customers.



On Wednesday, Ticonderoga Securities analyst Brian White relayed recent Chinese reports suggesting China Telecom could release a "simplified" and more economical iPhone 4 alongside the iPhone 5 later this year. It is not known, however, whether the rumored device would require a two-year contract or would be the contract-free iPhone.



Several major media outlets (1, 2, 3) suggested earlier this year that Apple has been hard at work on a cheaper version of the iPhone that wouldn't require a carrier subsidy.



In addition to details surrounding Apple's interest in a cheaper iPhone, another takeaway from Abramsky's meeting was that Apple has maintained "sustained advantages" over Android, including an integrated approach to hardware and software, oversight of user experience and application ecosystem curation. These advantages should help the company weather the "expected explosion of low-priced Android smartphones" that will be detrimental to Nokia, Research in Motion and others, he said.



Abramsky added that he sees Apple's current legal disputes with Android vendors such as HTC and Samsung as likely to result in a settlement. Apple recently won a battle in its legal disagreement with handset maker HTC, which has said it's interested in settling outside of court.



The analyst also noted that iCloud is expected to be ready for "significant scale," with Apple having learned its lesson from the MobileMe service.



He came away from the meeting with an overall positive outlook on Apple. The executives affirmed Apple's "untapped global opportunity," especially in China, which has seen tremendous growth in recent years, the analyst said. Other emerging markets such as Latin America, the Middle East and India also provide Apple with a significant opportunity for expansion.



RBC maintains a price target of $500 for shares of Apple stock, reiterating its Outperform rating for the company.
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Comments

  • Reply 1 of 35
    Apple has rarely released a product unless it has been a category killer. The times they have released a product which has not been a category killer they have failed (e.g. iPod Boombox…yeah, I know most don't even remember that travesty, and the original Apple TV).



    However, I don't know about this point of view. The fact is that the iPod Touch is indeed a category killer (this is evident from the complete absence of any competitors). Why wouldn't Apple be able to add a cellular chip to the iPod Touch and sell it for $120 more without contract (i.e. $350?). It would only extend the category defining aspect of the iPod Touch.



    They could sell iPod Touches the way they do iPads. WiFi only for a base price of $229, and with a 3G chip for an additional $119 ($129 for the iPad, but I think Apple could afford to reduce the markup by $10).



    The point is that Apple does not need a new product. They need an iPod Touch + 3G..
  • Reply 2 of 35
    jnjnjnjnjnjn Posts: 588member
    Quote:
    Originally Posted by AppleInsider View Post


    After a meeting with two of Apple's top executives, RBC Capital Markets analyst Mike Abramsky said the company's primary requirement for launching a lower-end iPhone is whether the handset would provide an "innovative, category-killer experience."



    The killer experience is the iPhone itself. If it can beat the high end smartphones it can certainly beat the lower end smartphones.

    So is Apple considering to strip important features from it's iPhone?

    The fact of the matter is that Apple sells it's iPhone 4 contract free for ?600 and it's iPod counterpart for ?230. And even if you add ?25 for the missing parts the price difference is more than ?300 and thats a huge difference.

    So Apple could easily drop the price to ?350 or so without compromise and still earn 40% or more.



    J
  • Reply 3 of 35
    The article mentions the need for a contract free iPhone. The author seems to ignore the fact that in several countries the iPhone has been unlocked from day 1 (don't let yourself be pinned down by the US situation only). When I got my 3GS, I just put my prepaid SIM card in the iPhone, and it worked (after registering, I guess). Occasionally, when I expect to be out of range of my usual WiFi networks, I purchase a month's worth of data (€10 for 500MB). My carrier is Base (Belgium).



    It is true, however, in the prepaid situation where the entry price is unsubsidized, that a more affordable model would create an additional market for people who mostly look at the up-front price.
  • Reply 4 of 35
    cvaldes1831cvaldes1831 Posts: 1,832member
    Apple Inc. generally goes after profit, not marketshare.



    They are raking in about two-thirds of the cellular handset industry's profits even though their marketshare is about six percent.



    If Apple wants to delve into the "low-cost" smartphone market, they will do it in a way where they still maintain their margins, much in the same way they drove down into the MP3 player market's bottom end.



    Today, one can purchase a 4GB MP3 player for half the price of the 2GB iPod shuffle, yet no one essentially bothers. Apple isn't going to play the cost competition game.
  • Reply 5 of 35
    dickprinterdickprinter Posts: 1,060member
    Slightly thicker than iPod Touch form factor Mini SD



    (r)evolutionary quality camera/HD video capability



    Telephony only



    One screen UI with permanent set of apps: Clock/alarm, notes, calculator, voice recorder, calendar, iPod Lite? etc.



    BoM $75, sell price: $300

    Prepaid market



    $25 phone to consumer w/phone plan



    Covers low end market, 9-15 year olds





    Am I crazy or stupid?
  • Reply 6 of 35
    As always, I'll chime in. Softbank in Japan has always been offering the lower of the two available capacities of iPhone for free with a two year contract. There is no need for Apple to be doing this for the carrier unless Softbank is eating major margins with this offer. iPhone should offer a great experience, period. It doesn't need to be fractured like Android.
  • Reply 7 of 35
    vixfixvixfix Posts: 2member
    Has anyone considered taht Apple Inc may just coninue making the iPhone 3Gs insted of thinking of another cheap version of an iPhone?
  • Reply 8 of 35
    Quote:
    Originally Posted by vixfix View Post


    Has anyone considered taht Apple Inc may just coninue making the iPhone 3Gs insted of thinking of another cheap version of an iPhone?



    That makes a lot of sense.



    R&D has already been amortized fully.

    Tooling costs have already been amortized fully.

    Packaging and shipping costs can be reduced greatly if they eliminate the fancy boxes and bulk pack the product.



    The marginal cost of production is likely to be very low at this point.
  • Reply 9 of 35
    ameldrum1ameldrum1 Posts: 249member
    Quote:
    Originally Posted by addicted44 View Post


    Apple has rarely released a product unless it has been a category killer. The times they have released a product which has not been a category killer they have failed.



    I'm not sure how many products Apple have launched in the last 35 years or so, but by my reckoning exactly 2 have been category killers. The iPod and the iPad. Each of these achieved more than 50% market share (quite a remarkable achievement).
  • Reply 10 of 35
    Quote:
    Originally Posted by addicted44 View Post


    Apple has rarely released a product unless it has been a category killer. The times they have released a product which has not been a category killer they have failed (e.g. iPod Boombox?yeah, I know most don't even remember that travesty, and the original Apple TV).



    However, I don't know about this point of view. The fact is that the iPod Touch is indeed a category killer (this is evident from the complete absence of any competitors). Why wouldn't Apple be able to add a cellular chip to the iPod Touch and sell it for $120 more without contract (i.e. $350?). It would only extend the category defining aspect of the iPod Touch.



    They could sell iPod Touches the way they do iPads. WiFi only for a base price of $229, and with a 3G chip for an additional $119 ($129 for the iPad, but I think Apple could afford to reduce the markup by $10).



    The point is that Apple does not need a new product. They need an iPod Touch + 3G..



    $350 is pretty steep for the prepaid market... most prepaid phones range from $20-$150. i think apple would have to get pretty close to $200 to take out the "premium" prepaid market.
  • Reply 11 of 35
    lamewinglamewing Posts: 742member
    Quote:
    Originally Posted by addicted44 View Post


    Apple has rarely released a product unless it has been a category killer. The times they have released a product which has not been a category killer they have failed (e.g. iPod Boombox?yeah, I know most don't even remember that travesty, and the original Apple TV).



    However, I don't know about this point of view. The fact is that the iPod Touch is indeed a category killer (this is evident from the complete absence of any competitors). Why wouldn't Apple be able to add a cellular chip to the iPod Touch and sell it for $120 more without contract (i.e. $350?). It would only extend the category defining aspect of the iPod Touch.



    They could sell iPod Touches the way they do iPads. WiFi only for a base price of $229, and with a 3G chip for an additional $119 ($129 for the iPad, but I think Apple could afford to reduce the markup by $10).



    The point is that Apple does not need a new product. They need an iPod Touch + 3G..



    Agreed. With the introduction of an iPod Touch 3G and a low-cost iPhone for use on prepaid (and free with 2 year contract), Apple could lock up a larger section of the market. May folks get Android phones because they are $50 or less when they sign their contracts. This would allow Apple to take part of the low cost market. In addition, using an iPhone on as a GoPhone works well. I did it for two months (as an experiment), one month using only minutes/texting/wifi and the next month using only 3G data/wifi/Skype. Both months cost me $27.xx and worked flawlessly.



    The kicker would be release the iPod Touch 3G. Apple could slightly gimp it with no GPS (I hope not) and no ability to act as a wifi hotspo as well as continue to give it substandard cameras/displayt so as to separate it from the iPhone. This idea would bring in potential, future iPhone users without really cannibalizing the iPhone sales. Toyota has done this forever by getting kids interested in Toyota by first selling them Scions, later Toyotas and finally Lexus.



    I am part of a small minority who (contract is finished) is ready to drop my plan and switch back to a dumbphone and use an iPod Touch for my iOS needs. But IF Apple released a 3G enabled iPhone Touch I will buy that instead. I can use Skype on 3G & wifi, iMessage to iOS users and Google Voice free SMS to those non-iOS folks.



    I guess we will see.
  • Reply 12 of 35
    blackbookblackbook Posts: 1,361member
    Quote:
    Originally Posted by Dickprinter View Post


    Slightly thicker than iPod Touch form factor Mini SD



    (r)evolutionary quality camera/HD video capability



    Telephony only



    One screen UI with permanent set of apps: Clock/alarm, notes, calculator, voice recorder, calendar, iPod Lite? etc.



    BoM $75, sell price: $300

    Prepaid market



    $25 phone to consumer w/phone plan



    Covers low end market, 9-15 year olds





    Am I crazy or stupid?



    I know some people here have speculated that they might make a Nano based phone, which I think would be really cool. They phone could rely heavily on Nuance based speech-to-text technology because it would lack a full keyboard and it would primarily be a Clock/alarm, calculator, voice recorder, calendar, iPod phone. That would be an interesting type of device they could sell for $200, but I don't know how useful a 3 inch by 3 inch phone would be.



    I've always thought of a lower priced iPhone being a full featured iPhone minus the latest processor and specs, but would that be a phone that could be qualified as "category-killing"?
  • Reply 13 of 35
    blackbookblackbook Posts: 1,361member
    Quote:
    Originally Posted by lamewing View Post


    Agreed. With the introduction of an iPod Touch 3G and a low-cost iPhone for use on prepaid (and free with 2 year contract), Apple could lock up a larger section of the market. May folks get Android phones because they are $50 or less when they sign their contracts. This would allow Apple to take part of the low cost market. In addition, using an iPhone on as a GoPhone works well. I did it for two months (as an experiment), one month using only minutes/texting/wifi and the next month using only 3G data/wifi/Skype. Both months cost me $27.xx and worked flawlessly.



    The kicker would be release the iPod Touch 3G. Apple could slightly gimp it with no GPS (I hope not) and no ability to act as a wifi hotspo as well as continue to give it substandard cameras/displayt so as to separate it from the iPhone. This idea would bring in potential, future iPhone users without really cannibalizing the iPhone sales. Toyota has done this forever by getting kids interested in Toyota by first selling them Scions, later Toyotas and finally Lexus.



    I am part of a small minority who (contract is finished) is ready to drop my plan and switch back to a dumbphone and use an iPod Touch for my iOS needs. But IF Apple released a 3G enabled iPhone Touch I will buy that instead. I can use Skype on 3G & wifi, iMessage to iOS users and Google Voice free SMS to those non-iOS folks.



    I guess we will see.



    I hear a lot of people on Apple tech blogs are interested in an iPod Touch 3G but in reality how many regular consumers are and how many people would really buy such a device outside of tech users?



    I think a lower cost iPhone would have FAR more market appeal than a 3G iPod Touch, but I could be wrong.
  • Reply 14 of 35
    lamewinglamewing Posts: 742member
    Quote:
    Originally Posted by blackbook View Post


    I hear a lot of people on Apple tech blogs are interested in an iPod Touch 3G but in reality how many regular consumers are and how many people would really buy such a device outside of tech users?



    I think a lower cost iPhone would have FAR more market appeal than a 3G iPod Touch, but I could be wrong.



    MANY MANY kids (for one example) whose parents cannot/will not set up an iPhone contract, but want to be able to run iOS devices, do text messaging (iMessage), social networking, etc. While you may not want it...there is a huge market for this. The iPad 3G doesn't fit the bill here because it is not pocketable.....
  • Reply 15 of 35
    The 3GS is in a good spot to be pushed down a price spot. Keep the specs mostly the same (update where it can without impacting financially), update the casing to be more in line with modern iterations, and you're done. There's lots of people out there who don't need front-facing video or high-resolution camera or a Retina Display.
  • Reply 16 of 35
    asdasdasdasd Posts: 5,066member
    Yeah, i see no reason to abandon the 3GS.
  • Reply 17 of 35
    Quote:
    Originally Posted by lamewing View Post


    MANY MANY kids (for one example) whose parents cannot/will not set up an iPhone contract, but want to be able to run iOS devices, do text messaging (iMessage), social networking, etc. While you may not want it...there is a huge market for this. The iPad 3G doesn't fit the bill here because it is not pocketable.....



    Yes! Our household has 2 adults and 3 children



    The adults have iPhones, the kids have various junk phones (cost $75-$95 each subsidized).



    ATT charges monthly:



    $60 iPhone 1 with data - includes $30 for family plan)

    $30 iPhone 2 with data

    $30 3 junk phones with no data (3 x $10)



    ...unlimited texting and other stuff





    The iPhones never come close 2 using their data



    What we would like is some sort of combined data plan or other arrangement where the kids could use iPhones instead of junk phones at the same monthly cost.



    We all have iPads and the kids each have an older SIMless iPhone as a portable game device in lieu of a Nintendo or Sony.



    We can share apps, why can't we share a data plan?



    There's an opportunity here!
  • Reply 18 of 35
    herbapouherbapou Posts: 2,200member
    Quote:
    Originally Posted by mbarriault View Post


    The 3GS is in a good spot to be pushed down a price spot. Keep the specs mostly the same (update where it can without impacting financially), update the casing to be more in line with modern iterations, and you're done. There's lots of people out there who don't need front-facing video or high-resolution camera or a Retina Display.



    Something like this indeed. Price need to be 199$ or below. And I would upgrade the CPU to A4 or if you prefer current iphone minus one CPU gen.
  • Reply 19 of 35
    Quote:
    Originally Posted by ameldrum1 View Post


    I'm not sure how many products Apple have launched in the last 35 years or so, but by my reckoning exactly 2 have been category killers. The iPod and the iPad. Each of these achieved more than 50% market share (quite a remarkable achievement).



    You wouldn't include the iPhone in that list? Apple completely redefined the smartphone with the release of the iPhone. After all the crap they took about daring to compete with Motorola, Nokia, etc., they stood the market on its ear.
  • Reply 20 of 35
    Quote:
    Originally Posted by mbarriault View Post


    The 3GS is in a good spot to be pushed down a price spot. Keep the specs mostly the same (update where it can without impacting financially), update the casing to be more in line with modern iterations, and you're done. There's lots of people out there who don't need front-facing video or high-resolution camera or a Retina Display.



    How far can you push down the 3GS? They're already giving them away with 2-year contract.
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