The worry that (more) carriers might drop subsidies, is one of the reasons why investors want Apple to be working on a less expensive phone. They see Apple as very vulnerable in such a situation.
It really got started early last year when reports emerged of how much cash US carriers had tied up in iPhone subsidies. Then it popped up again when Spain's top two carriers dropped iPhone subsidies. A bit later, one of the Northern Europe carriers did as well (I forget which one). As would be expected, iPhone sales in those areas dropped pretty quickly.
Now T-Mobile has dropped subsidies, and there are hints that Verizon and AT&T would love to as well, or perhaps at least separate out the phone loan from the monthly contract, which would help expose the cost to the customer. OTOH, some think that they'll never stop subsidies. We'll have to wait and see.
that makes it even worse for the consumer, because you know if that happens, Att, Verizon or sprint won't drop the prices of their plans. they're still going to charge you $85-$100/mo. for service, despite having not subsidy.
Cutting subsidies is something the CNBC's of the world have been going on about for a least a year now. Every time they interview someone from AT&T or Verizon they try and bait them into saying something about subsidies that will fit their meme that Apple is doomed because of smartphone subsidies being slashed. What evidence is there that AT&T and Verizon are being hurt in the long run over smartphone subsidies?
You appear to be assuming that they wouldn't be making some kind of similar move (product line differentiation/segmentation) with the phone. I don't know why you'd assume that.
A new, cheaper, mass market phone is not a new member in a product family as Apple would do it, or ever has done it. A phone, just as a phone with no internet or camera or retina would be the very last thing Apple would produce.
Apple is having a hard enough time manufacturing enough high end phones, why would they say 'we need to manufacture 10x this amount at lower margins'? (see SS's low phone low margin quarterly report).
Originally Posted by MJ1970
True, but you assume that Apple is not interested in pursuing additional customers.
At what cost or risk? Again, they are trying as hard as they can just to get enough high end phones out the door. Why gain more at a lower margin? Why do this at the risk of tarnishing your brand?
Just because people want the stock to be $1,000/share? I don't think Apple needs the money, do you?
Originally Posted by MJ1970
I'm not sure anyone is claiming that.
But that is what will happen if Apple starts to manufacture cheap products. That, my guess, is why the plastic Macbook went out; due in part to Apple wanting to remove 'cheaper' products from the lineup. Customers agreed and the Macbook was eventually replaced by the Macbook Air.
Originally Posted by MJ1970
It helps if you don't tell me what I'm thinking. I'm not thinking any such thing.
Okay, how about this. A similar analogy would be....
This bears repeating. The iPad maxi to iPad mini strategy is wholly different. The iPad mini is cheaper for the cheaper components, yes, but margins do not suffer greatly. AAPL is not afraid of people buying the mini in lieu of the maxi. Camera and processor are good enough. Exact same OS. Screen is good enough.
Also, the iPod strategy is different as well. All the iPods have different OSs and user experiences. The Touch has (essentially) standard iOS. The Nano has a greatly bastardized iOS with no app store. The Classic has the click wheel (no apps). The shuffle has no screen.
But these analysts are saying Apple will sell a iPhone with the same iOS for ~$300 unlocked. And why wouldn't that greatly cannibalize the flagship iPhone? The iPad mini and iPad maxi are different form factors and the mini is, in fact, pretty costly with a price difference of only $170 at similar configs. Are people really thinking that a ~$300 off contract iPhone wouldn't deftly kill the flagship ~$650 model with a difference greater than $300? The differences would have to be immense which I don't see Apple doing. Put all the great components in the flagship you want. If it's still essentially the same iPhone user experience in the iPhone mini then people are getting unlocked phones for $300 instead of the on contract phones for $200 and taking the lower plan costs with it. Say goodbye to ~50% margins.
There would have to be a way to differentiate between the models enough so that the iPhone mini isn't a grand ASP and gross margin killer. That is the main question which no one has an answer to.To sell this effectively they'd have to do at least four things:
1. Limit the "cheaper" iPhone to certain markets.
2. Require AT&T et.al. to disallow a contract price to purchase the iPhone mini for, say ~$50 on contract in the American and Euro markets.
3. Create grand efficiencies on the price of components and build that are vastly below the flagship to keep up their margin.
4. Bastardize iOS on the lower end version. They'd have to remove Siri, remove Passbook, and maybe reserve other implementations for only the flagship model to make it more sought after.
If those steps aren't done why wouldn't I, as a consumer, get the cheaper (and newly released) model that looks the same, has the same OS, but just has a weaker processor and not-as-good-but-good-enough camera? These mini talks call for them release two new phones, at the same time, with one being cheaper to make and thus costing less, still keeping their margins, still keeping their "premium" status, while not having the mini cannibalize the flagship and greatly cannibalize their margins.
Just looking at the iPhone 4 they've limited the OS, use a "older" processor and not as good camera, and limit the space to 8GB. But that model is still $450 off contract. Where are the other $150 savings coming from on a newly-developed iPhone mini compared to a previous generation iPhone 4?
AND..is this phone supposed to be 3.5" or 5"? Thought we wanted developers to move off the 3.5" and on to the 4" resolution. If the iPhone mini proves to be a new 3.5" phone it'd be a new line of products for the forseeable future. Developers would have to plan to accept 3.5" for the next 5+ years?
For this to work it would have to become an iPhone Nano/Shuffle with limited features akin to the iPods of the same name. This would all seem like a grand proposition that I don't think Apple is willing to make. Unless someone can show how margins won't be dropped from ~50% to ~25% without doing the aforementioned steps I just don't see it.
Agree, and I don't see Apple doing this at all. Their manufacturing is a full capacity and they are making money, lots of money. What incentive do they have to cut margin and increase support (cheaper components always creates more support calls, which again tarnishes the brand)?
a 3.7" sapphire crystal display, titanium case and "Bang & Olufsen" sound, with Android 4.x as the OS. Fun fact: Vertu is a spin-off from Nokia just this past October, yet chose to use Google Android rather than Microsoft's OS for it's latest product.
....and all for just $11,000.
Vertu claims 323 thousand owners of it's phones so far, many of them in China.
[SIZE=14px]a 3.7" sapphire crystal display, titanium case and "Bang & Olufsen" sound<span style="line-height:25px;">, with Android 4.x as the OS. Fun fact: Vertu is a spin-off from Nokia just this past October, yet chose to use Google Android rather than Microsoft's OS for it's latest product.</span> [/SIZE]
[SIZE=14px]<span style="line-height:25px;">....[SIZE=16px]and all for just $11,000.[/SIZE]</span> [/SIZE]
[SIZE=14px]<span style="line-height:25px;">Vertu claims 323 thousand owners of it's phones so far, many of them in China.</span> [/SIZE]
1) Remember the old Vertu phones?
2) If anyone doesn't think China has plenty of people with money with a desire for status symbols then I'll refer them to 323,000 units at $11,000 for a phone that is no more functional than other Android 4.x devices.
3) 3.7"? I thought no one wanted such a small phone¡
2) If anyone doesn't think China has plenty of people with money with a desire for status symbols then I'll refer them to 323,000 units at $11,000 for a phone that is no more functional than other Android 4.x devices.
That's worldwide. The largest set of Vertu buyers was originally in the Russian and Saudi Arabian regions.
Still, there are a lot of Vertu boutiques now listed in China!
3) 3.7"? I thought no one wanted such a small phone¡
I think that most of them don't even have cameras or other common features. As you already know, they're meant more as jewelry than functional items. (Yes, I saw your little sarcasm mark - grin)
Comments
Quote:
Originally Posted by gwmac
As an Apple stockholder and a current generation iPhone owner maybe I just follow the news a lot closer than you.
that's where i stopped reading. what does owning the current generation phone have anything to do with closely following the news?
Quote:
Originally Posted by KDarling
Indeed. As you said, this has been all over the news for almost a year now. Heck, AI itself reported on this last April... "Analyst cuts AAPL rating on iPhone subsidy backlash."
The worry that (more) carriers might drop subsidies, is one of the reasons why investors want Apple to be working on a less expensive phone. They see Apple as very vulnerable in such a situation.
It really got started early last year when reports emerged of how much cash US carriers had tied up in iPhone subsidies. Then it popped up again when Spain's top two carriers dropped iPhone subsidies. A bit later, one of the Northern Europe carriers did as well (I forget which one). As would be expected, iPhone sales in those areas dropped pretty quickly.
Now T-Mobile has dropped subsidies, and there are hints that Verizon and AT&T would love to as well, or perhaps at least separate out the phone loan from the monthly contract, which would help expose the cost to the customer. OTOH, some think that they'll never stop subsidies. We'll have to wait and see.
that makes it even worse for the consumer, because you know if that happens, Att, Verizon or sprint won't drop the prices of their plans. they're still going to charge you $85-$100/mo. for service, despite having not subsidy.
Cutting subsidies is something the CNBC's of the world have been going on about for a least a year now. Every time they interview someone from AT&T or Verizon they try and bait them into saying something about subsidies that will fit their meme that Apple is doomed because of smartphone subsidies being slashed. What evidence is there that AT&T and Verizon are being hurt in the long run over smartphone subsidies?
Originally Posted by MJ1970
You appear to be assuming that they wouldn't be making some kind of similar move (product line differentiation/segmentation) with the phone. I don't know why you'd assume that.
A new, cheaper, mass market phone is not a new member in a product family as Apple would do it, or ever has done it. A phone, just as a phone with no internet or camera or retina would be the very last thing Apple would produce.
Apple is having a hard enough time manufacturing enough high end phones, why would they say 'we need to manufacture 10x this amount at lower margins'? (see SS's low phone low margin quarterly report).
Originally Posted by MJ1970
True, but you assume that Apple is not interested in pursuing additional customers.
At what cost or risk? Again, they are trying as hard as they can just to get enough high end phones out the door. Why gain more at a lower margin? Why do this at the risk of tarnishing your brand?
Just because people want the stock to be $1,000/share? I don't think Apple needs the money, do you?
Originally Posted by MJ1970
I'm not sure anyone is claiming that.
But that is what will happen if Apple starts to manufacture cheap products. That, my guess, is why the plastic Macbook went out; due in part to Apple wanting to remove 'cheaper' products from the lineup. Customers agreed and the Macbook was eventually replaced by the Macbook Air.
Originally Posted by MJ1970
It helps if you don't tell me what I'm thinking. I'm not thinking any such thing.
Okay, how about this. A similar analogy would be....
Quote:
Originally Posted by alcstarheel
This bears repeating. The iPad maxi to iPad mini strategy is wholly different. The iPad mini is cheaper for the cheaper components, yes, but margins do not suffer greatly. AAPL is not afraid of people buying the mini in lieu of the maxi. Camera and processor are good enough. Exact same OS. Screen is good enough.
Also, the iPod strategy is different as well. All the iPods have different OSs and user experiences. The Touch has (essentially) standard iOS. The Nano has a greatly bastardized iOS with no app store. The Classic has the click wheel (no apps). The shuffle has no screen.
But these analysts are saying Apple will sell a iPhone with the same iOS for ~$300 unlocked. And why wouldn't that greatly cannibalize the flagship iPhone? The iPad mini and iPad maxi are different form factors and the mini is, in fact, pretty costly with a price difference of only $170 at similar configs. Are people really thinking that a ~$300 off contract iPhone wouldn't deftly kill the flagship ~$650 model with a difference greater than $300? The differences would have to be immense which I don't see Apple doing. Put all the great components in the flagship you want. If it's still essentially the same iPhone user experience in the iPhone mini then people are getting unlocked phones for $300 instead of the on contract phones for $200 and taking the lower plan costs with it. Say goodbye to ~50% margins.
There would have to be a way to differentiate between the models enough so that the iPhone mini isn't a grand ASP and gross margin killer. That is the main question which no one has an answer to.To sell this effectively they'd have to do at least four things:
1. Limit the "cheaper" iPhone to certain markets.
2. Require AT&T et.al. to disallow a contract price to purchase the iPhone mini for, say ~$50 on contract in the American and Euro markets.
3. Create grand efficiencies on the price of components and build that are vastly below the flagship to keep up their margin.
4. Bastardize iOS on the lower end version. They'd have to remove Siri, remove Passbook, and maybe reserve other implementations for only the flagship model to make it more sought after.
If those steps aren't done why wouldn't I, as a consumer, get the cheaper (and newly released) model that looks the same, has the same OS, but just has a weaker processor and not-as-good-but-good-enough camera? These mini talks call for them release two new phones, at the same time, with one being cheaper to make and thus costing less, still keeping their margins, still keeping their "premium" status, while not having the mini cannibalize the flagship and greatly cannibalize their margins.
Just looking at the iPhone 4 they've limited the OS, use a "older" processor and not as good camera, and limit the space to 8GB. But that model is still $450 off contract. Where are the other $150 savings coming from on a newly-developed iPhone mini compared to a previous generation iPhone 4?
AND..is this phone supposed to be 3.5" or 5"? Thought we wanted developers to move off the 3.5" and on to the 4" resolution. If the iPhone mini proves to be a new 3.5" phone it'd be a new line of products for the forseeable future. Developers would have to plan to accept 3.5" for the next 5+ years?
For this to work it would have to become an iPhone Nano/Shuffle with limited features akin to the iPods of the same name. This would all seem like a grand proposition that I don't think Apple is willing to make. Unless someone can show how margins won't be dropped from ~50% to ~25% without doing the aforementioned steps I just don't see it.
Agree, and I don't see Apple doing this at all. Their manufacturing is a full capacity and they are making money, lots of money. What incentive do they have to cut margin and increase support (cheaper components always creates more support calls, which again tarnishes the brand)?
While rumors of a cheaper iPhone are on the winds, along comes what may be the most expensive smartphone in the world, the Vertu Ti.
http://www.vertu.com/
a 3.7" sapphire crystal display, titanium case and "Bang & Olufsen" sound, with Android 4.x as the OS. Fun fact: Vertu is a spin-off from Nokia just this past October, yet chose to use Google Android rather than Microsoft's OS for it's latest product.
....and all for just $11,000.
Vertu claims 323 thousand owners of it's phones so far, many of them in China.
1) Remember the old Vertu phones?
2) If anyone doesn't think China has plenty of people with money with a desire for status symbols then I'll refer them to 323,000 units at $11,000 for a phone that is no more functional than other Android 4.x devices.
3) 3.7"? I thought no one wanted such a small phone¡
Quote:
Originally Posted by SolipsismX
2) If anyone doesn't think China has plenty of people with money with a desire for status symbols then I'll refer them to 323,000 units at $11,000 for a phone that is no more functional than other Android 4.x devices.
That's worldwide. The largest set of Vertu buyers was originally in the Russian and Saudi Arabian regions.
Still, there are a lot of Vertu boutiques now listed in China!
3) 3.7"? I thought no one wanted such a small phone¡
I think that most of them don't even have cameras or other common features. As you already know, they're meant more as jewelry than functional items. (Yes, I saw your little sarcasm mark - grin)
Thanks. That was definitely poor reading comprehension on my part.
Quote:
Originally Posted by SolipsismX
Thanks. That was definitely poor reading comprehension on my part.
No harm, no foul. We've all done it, at one time or another!
Lower price iPhone?
That would enrage some followers.
Anyways don't they have iP4, 4S ...?