Apple seen having leeway to sell iPhone at $99

Posted:
in iPhone edited January 2014
Apple's very strong real-world revenues and its high iPhone gross margins are now thought to give the company substantial headroom for a price cut that could lead to huge strides forward in market share.



In a Monday investment note from Needham Research, analyst Charlie Wolf reiterates the belief that Apple's doubled revenue in the past year has been 'hidden' by accounting rules but adds that this leaves the company "considerable flexibility" to institute price cuts on iPhones if economic concerns or a simple desire to expand its sales necessitated a drop below today's $199 entry price.



While about two million of Apple's nearly 6.9 million iPhones are counted as worldwide inventory and so hint at a possible decline in iPhone sales in the fall, Wolf explains that iPhone sales are likely to keep increasing and so make a price slash that much more feasible.



More important is Apple's own built-in breathing space for a cut, he says. If Apple TV sales aren't directly included in the equation, Needham estimates an average selling price of about $666 for each iPhone -- an approximately 50 percent gross margin over the actual cost of producing and selling the device. That would leave Apple significant room to cut prices by itself without impacting AT&T's subsidies and could result in a $99 iPhone 3G while still carrying a well-padded 42.3 percent margin.



To the analyst, this could potentially lead to "double or triple" his institution's projected sales for iPhones, which at last check anticipated 15.7 million units in 2009; as a result, it would significantly skew worldwide market share in Apple's favor.



"In short, the iPhone... could figuratively take over the smartphone market leaving only niche players like BlackBerry," Wolf argues.



While it remains to be seen whether Apple aggressively trims prices instead of adding features, the iPhone maker is already known to be outshadowing competitors in some areas: its second-generation touchscreen phone has already outsold the BlackBerry line during the summer quarter and was one of the US' top handsets of any type in the same period.



Wolf is keen to note that Apple is unlikely to stop deferring its revenue per iPhone in the near future and thus won't automatically give a better sense of its potential to lower iPhone prices, even if the company will now make it a habit to report its true revenues with each quarter. However, it's this deferred approach that the researcher believes is key to Apple offering free major updates for each iPhone and thus to guarantee an even greater source of revenue as every iPhone owner gains the option of browsing the App Store and in turn spurs more hardware sales.



"With over 5,000 applications and growing, the App Store has the potential to generate a material revenue stream for Apple," he says. "More importantly, the App Store represents a significant and durable competitive advantage over competing smartphones... In the App Store, Apple has reinvented the PC maxim that software drives hardware, in this case iPhone sales."
«134

Comments

  • Reply 1 of 64
    irelandireland Posts: 17,737member
    The US says bring it on! Of course.



    Check out these prices in 'me'
  • Reply 2 of 64
    Quote:
    Originally Posted by AppleInsider View Post




    To the analyst, this could potentially lead to "double or triple" his institution's projected sales for iPhones, which at last check anticipated 15.7 million units in 2009; as a result, it would significantly skew worldwide market share in Apple's favor.



    Oh that's right. Nokia will go out of the phone biz. Good thing these geniuses are here to remind the world that only one company makes phones.



    Quote:

    "In short, the iPhone... could figuratively take over the smartphone market leaving only niche players like BlackBerry," Wolf argues.



    A Shaw Wu statement if I ever heard one.



    Quote:

    While it remains to be seen whether Apple aggressively trims prices instead of adding features, the iPhone maker is already known to be outshadowing competitors in some areas: its second-generation touchscreen phone has already outsold the BlackBerry line during the summer quarter and was one of the US' top handsets of any type in the same period.



    Does this stupid statement mean that the rest of the world does not exist?
  • Reply 3 of 64
    Don't even bother with cheaper prices...Try keeping the storage space in line with the iPod Touch. Here's the pricing structure I'd like to see:



    8GB iPhone: $99

    16GB iPhone: $199

    16GB iPod Touch: $199

    32GB iPhone: $299

    32GB iPod Touch: $299



    Cheaper prices don't always equal more marketshare. Cheaper prices usually equal poorer workmanship and quality of product. This is extremely antithetical to Apple's history from the late 90's to the early 2000's.
  • Reply 4 of 64
    Where did they get a figure of $666? Sounds like a figure picked for controversy... just wait and see.
  • Reply 5 of 64
    Oh brother, I certainly hope not. I would much rather pay more upfront and less over time. The iPhone 3G is a lot more expensive then the first iPhone over 24 months. And it's all cause people don't consider total cost, they only look at the initial payment payment.



    It's the same story with the mortgage crisis. People just look at the monthly payments and don't consider how much they're actually paying!
  • Reply 6 of 64
    irelandireland Posts: 17,737member
    Quote:
    Originally Posted by SpamSandwich View Post


    Where did they get a figure of $666? Sounds like a figure picked for controversy... just wait and see.



    He was cross referencing his Microsoft analysis
  • Reply 7 of 64
    I mean really, who is this guy? A Shaw Wu wannabe?
  • Reply 8 of 64
    sflocalsflocal Posts: 5,511member
    These guys should stick with repairing their reputation within the financial sector instead of giving lame "predictions". It's like they have nothing better to do than to sit at their desks pushing pencils and coming up with something just for the sake of doing it.



    Hey, if BMW cuts the price of their cars in half, it will be a HUGE market disturbance!

    Even better, if Apple cuts the phone to $50, it will be world domination!



    <flamebait>



    How's about the end-of-life-as-we-know-it...

    "Charlie Wolf reiterates that Apple has considerable flexibility to institute price cuts to iPhones down to $0.99 cents! Mr. Wolf firmly predicts this price cut would make Apple the defacto provider of smartphones in the industry!"



    I hear the villagers rejoicing!! All hail Chuck Wolf!!



    What a moron.



    </flamebait>
  • Reply 9 of 64
    Quote:
    Originally Posted by williado21 View Post


    Cheaper prices don't always equal more marketshare. Cheaper prices usually equal poorer workmanship and quality of product. This is extremely antithetical to Apple's history from the late 90's to the early 2000's.



    Nice point. Apple should proceed cautiously.



    The iPhone does require some degree of computer savvy in use (incl. iTunes and all of its capabilities), i.e., it is not a standalone device. I wonder if the $99 price will attract a potential user segment that does not have the right computers and operating systems (e.g., right amount of RAM, processor speeds fast wifi connections for regular updates etc). The consequence may be an increase in quantity sold at the expense of customer satisfaction, implying a lot of returns, tech support investments, moaning and groaning in lots of public forums etc., all hassles that Apple might want to avoid.



    Apple would be far better off sticking to its classic strategy, which is: Find the right price point for the product and stick to, but upgrade the performance and functionality of future versions of the product for the same price. THis is (largely) what they have done with MBs, MBPs, iPods, etc.



    O/w, it could be shades of RAZR.
  • Reply 10 of 64
    irelandireland Posts: 17,737member
    Quote:
    Originally Posted by genericposts View Post


    I mean really, who is this guy? A Shaw Wu wannabe?



    What's funny is I know these guys read AI, you'd see them saying things you read here the whole time. I'm waiting for them to quote one of us one of these days!
  • Reply 11 of 64
    jeffdmjeffdm Posts: 12,949member
    While I think it's reasonable to say that Apple has plenty of profit margin to sell the current products $100 cheaper, from a business perspective, they shouldn't do that until the market is saturated at the current price.
  • Reply 12 of 64
    I'm not sure how much of the iPhone's cost is from the flash memory, but given how those prices are falling a $99 iPhone isn't unlikely. I'm not sure they want to go that far though. If the iPhone is selling well at the $199 price point, they shouldn't rush to drop the price so low, because once you introduce a $99 iPhone, it'll be hard to raise the price again.



    The current iPhone 3G can be made so cheap because it's so similar to the original iPhone and so is using technology that is more than a year old now. The next iPhone revision will no doubt be a major redesign, especially internally if PA Semi has anything to say about it and it's doubtful they could maintain a $99 price point.



    If they do want to cut price, maybe $149 for the 8GB and $249 for the 16GB might be sustainable.
  • Reply 13 of 64
    Quote:
    Originally Posted by genericposts View Post


    Oh that's right. Nokia will go out of the phone biz.



    I think it's fairly certain that nokia will take a huge hit over the next few years. And the iPhone will be significantly to blame.
  • Reply 14 of 64
    I do not see the point of this story. Apple can sell the iPhone if it wants to for 50 cents. There is no indication that they plan to lower the price, so why write about something Apple could possibly want to do some time in the future or never?



    Apple could also stop making the iPhone and get out of the Phone business (not that they will). Is this other potential action by Apple worth a news item?
  • Reply 15 of 64
    Quote:
    Originally Posted by DeaPeaJay View Post


    Oh brother, I certainly hope not. I would much rather pay more upfront and less over time. The iPhone 3G is a lot more expensive then the first iPhone over 24 months. And it's all cause people don't consider total cost, they only look at the initial payment payment.



    It's the same story with the mortgage crisis. People just look at the monthly payments and don't consider how much they're actually paying!



    And I'll add one more to that. Sell it unlocked for $599, even better if it includes the bluetooth headset. I'd buy it. I don't need a fancy data plan.
  • Reply 16 of 64
    benroethigbenroethig Posts: 2,782member
    I don't think we'll see a touchscreen iPhone, but I could see a more conventional iPhone Nano.
  • Reply 17 of 64
    alanskyalansky Posts: 235member
    If Apple sold the iPhone for $25, they could quadruple market share in no time. Or they could give it away free and have a real shot at an 80% market share within three months.
  • Reply 18 of 64
    satchmosatchmo Posts: 2,699member
    We're as likely to see a $99 iPhone as we are to see a $800 MacBook.



    Okay not quite the same, but come on folks...this is Apple. They are a premium brand across their product line. They don't have anything as a throw away or disposable-like in price. Even the diminutive iPod Shuffle still commands $50 when it should probably be around the $25 range.
  • Reply 19 of 64
    ivladivlad Posts: 742member
    I can't see Apple selling such cheap Phone. That's not apple at all. If no-one ever noticed, Apple doesn't go by he rules. Apple creates rules.
  • Reply 20 of 64
    irelandireland Posts: 17,737member
    Quote:
    Originally Posted by iVlad View Post


    I can't see Apple selling such cheap Phone. That's not apple at all. If no-one ever noticed, Apple doesn't go by he rules. Apple creates rules.



    Yeah like not giving us the Copy & Paste, cool!
Sign In or Register to comment.