More affordable iPhone predicted to grab Apple 11% share of low-end market in 2014

Posted:
in iPhone edited January 2014
A new $300 contract-free iPhone model could easily capture more than 10 percent of the low-end smartphone market in its first year alone, one industry analyst believes.

Gene Munster of Piper Jaffray said on Tuesday it's "achievable" for Apple to corner 11 percent of the low-end smartphone market right off the bat in calendar year 2014. He expects Apple to launch a $300 iPhone as soon as September of this year.

iPhones
Apple's current iPhone lineup.


To put his estimate in perspective, Apple currently controls 42 percent of the high-end smartphone market with its existing iPhone lineup. Market watchers widely anticipate that Apple will launch a new, less expensive iPhone model this year to address a market segment where it currently does not compete.

Munster believes Apple could achieve 30 percent gross margins with a $300 iPhone, down from the estimated 55 percent gross margins the company currently sees from existing iPhone models. The current lineup has an average selling price of $620, typically offset by a carrier contract subsidy.Piper Jaffray on Tuesday also cut its AAPL price target from $767 to $688.

In his "worst case" estimates, a low-end iPhone would cannibalize about 30 percent of existing iPhone sales. If that were to happen, he sees the company's gross margins dipping from 38.6 percent in the December 2012 quarter to 36.6 percent in calendar year 2014.

In the more immediate term, Munster expects Apple will guide June revenue below Wall Street expectations, to between $34 billion and $36 billion. Currently, investors expect an average guidance of $39.6 billion for the June quarter.

He also anticipates that Apple will increase its quarterly dividend when reporting its March quarter results next week. The company is scheduled to disclose its earnings on Tuesday, April 23.

Piper Jaffray has maintained its "overweight" rating for AAPL stock. The firm on Tuesday revised its price target down from $767 to $688.
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Comments

  • Reply 1 of 103
    rogifanrogifan Posts: 10,669member
    How in the world are Gene Munster comments newsworthy? Good grief AI. I know you're hard up for things to report as all is quiet in Cupertino but that doesn't mean you have to fill up your pages with this nonsense.
  • Reply 2 of 103

    Quote:

    Originally Posted by Rogifan View Post



    How in the world are Gene Munster comments newsworthy? Good grief AI. I know you're hard up for things to report as all is quiet in Cupertino but that doesn't mean you have to fill up your pages with this nonsense.


    I agree with the above. The barrage of speculative, nonsensical bullshit to which we are now subjected is completely out of hand. Yes, I realize this is rumor site, but no site should encourage idiotic “analysts” by reposting their trash. I rarely visit AI these days; when I do, it's disappointing. AI used to be creative and fun, now it's just so much crap.

  • Reply 3 of 103
    philboogiephilboogie Posts: 7,494member
    Funny enough, he also reports on facts it seems:
    [I]
    By 5 to 1, Apple's iPhone 5 out-tweeted Samsung's Galaxy S4[/I]

    [URL=http://tech.fortune.cnn.com/tag/gene-munster/]http://tech.fortune.cnn.com/tag/gene-munster/[/URL]
  • Reply 4 of 103

    Quote:

    Originally Posted by Rogifan View Post



    How in the world are Gene Munster comments newsworthy? Good grief AI. I know you're hard up for things to report as all is quiet in Cupertino but that doesn't mean you have to fill up your pages with this nonsense.


     


    AI has been quoting Gene Munster regularly for years.  Maybe it's all be garbage, but it's kind of strange to start complaining about it on this particular article which doesn't seem to be any worse than other recent predictions from him that resulted in articles on this site.

  • Reply 5 of 103
    icoco3icoco3 Posts: 1,460member


    Why would someone who builds high end condos want to become a slum lord?? image  A bit of /s in that comment

     

  • Reply 6 of 103
    rogifan wrote: »
    How in the world are Gene Munster comments newsworthy? Good grief AI. I know you're hard up for things to report as all is quiet in Cupertino but that doesn't mean you have to fill up your pages with this nonsense.

    AppleInsider would report what Gene had for breakfast, if it was Apple Jacks.
  • Reply 7 of 103
    charlitunacharlituna Posts: 7,215member
    icoco3 wrote: »
    Why would someone who builds high end condos want to become a slum lord?? :lol:   A bit of /s in that comment

     

    They generally don't. And Apple has said they don't build to be cheap. So add that to this whole 30% of current iPhone buyers would go cheap and you have to wonder why, if they want the iPhone bad enough to buy the expensive one, would the company give them the choice to go cheap and lose that money.
  • Reply 8 of 103
    icoco3icoco3 Posts: 1,460member

    Quote:

    Originally Posted by charlituna View Post





    They generally don't. And Apple has said they don't build to be cheap. So add that to this whole 30% of current iPhone buyers would go cheap and you have to wonder why, if they want the iPhone bad enough to buy the expensive one, would the company give them the choice to go cheap and lose that money.


     


    And that was my point said in a sarcastic way.  They are already offering less expensive models.  I believe they are called iPhone 4S, and iPhone 4.

  • Reply 9 of 103
    pedromartinspedromartins Posts: 1,333member


    So all OEMs are eating a cake that's killing them. Meanwhile Apple is eating a whole chocolate (but nutritive and healthy) cake all by themselves (well, they give samsung a little).


     


    However, some analysts think that Apple should eat more cake, the cake that's killing all OEMs.


     


    Good enough.

  • Reply 10 of 103
    solipsismxsolipsismx Posts: 19,566member
    Great! Now I want cake! Screw you, Pedro¡
  • Reply 11 of 103
    kevtkevt Posts: 195member

    Quote:

    Originally Posted by charlituna View Post





    They generally don't. And Apple has said they don't build to be cheap. So add that to this whole 30% of current iPhone buyers would go cheap and you have to wonder why, if they want the iPhone bad enough to buy the expensive one, would the company give them the choice to go cheap and lose that money.


     


    Because maybe next time they'll go for something at a lower price point from someone else if Apple doesn't. A well rehearsed Apple philosophy - not being afraid to cannibalise your own sales - it's better than having competitors doing it.


     


    Because if they do those who have less money to spend on phones would then consider an iPhone who otherwise wouldn't.


     


    Because growing the user base secures profits down the line through iTunes media and App Store sales.


     


    Because a larger user base encourages App development, thus the platform as a whole, and thus further sales of all devices. High end and mid-range devices.


     


     


    In short, see the iPad mini. Not cheap - it's still Apple quality. But it is a lower spec iPad at a lower price point. 

  • Reply 12 of 103
    wingswings Posts: 261member
    So, Apple is criticized for not offering a cheap iPhone, and downgraded because the rumor says it will happen. Par for the course.
  • Reply 13 of 103
    paxmanpaxman Posts: 4,615member

    Quote:

    Originally Posted by charlituna View Post





    They generally don't. And Apple has said they don't build to be cheap. So add that to this whole 30% of current iPhone buyers would go cheap and you have to wonder why, if they want the iPhone bad enough to buy the expensive one, would the company give them the choice to go cheap and lose that money.


    The iPhone is different than what Apple 'normally' does. They are already offering older models as 'cheap' options, yet people buy the latest and greatest. The ones that can't afford to, or that understand their own needs may opt for a lower end iPhone and still get an excellent device / experience.

  • Reply 14 of 103
    richard getzrichard getz Posts: 1,142member


    I still don't get this, please help! 


     


    "He expects Apple to launch a $300 iPhone as soon as September of this year."


     


    Currently you can get an iPhone for free with 2-year contract. Not sure how much cheaper that could be and better than $300. The question is, how many people in the world don't contract with their carrier? Does anyone have a link? This seems like a really good deal. Sign up for 2 years and get a free smart phone. Or do some carriers not offer this in the world? Or is it the data plan that gets people? 


     


    Seriously, what am I missing that everyone insist Apple make a cheaper quality phone that will have thinner margins and could reduce the overall brand when they have show that the numbers race is in profit, not units. This reminds me of the MHz race where people thought more is better. 


     


    I will add that as with the iPod family, if Apple sees a new line that fits what consumers needs/wants, then I could see that being introduced. Such as a less capable iPhone (although arguably all previous models are), but then the discussion would be what to take away and still keep the 'smart phone' title? 


     



    • Camera? The Free iPhones do have older cameras and I don't see Apple taking that away? 


    • Build? By the time the phone becomes free, the build quality would become a far less cost hog as, I would imagine, all the R&D and process has been ironed out. Would moving to plastic make the phone that much cheaper? And with others moving to better materials, would that not make Apple look like they are going backwards? 


    • WiFi only and no GPS? With WiFi only you could save on the data plan and hardware with no GPS, but that really kills some major functions of the phone. 


    • Siri? Removing Siri would not reduce price. Unless the processor and RAM is greatly reduced. 


    • Retina display? Moving away from this would probably be more costly as having to use two different materials increases cost of production. 


    • Processor? Sure, they can save here by using processors that don't meet specs as they do in the Apple TV


    • Less RAM and less SSD space? Sure, that would be another area. (they already offer multiple sizes so adding another smaller size would not increase production complexity like adding non-retina screens would)


     


    So really, all Apple would have to do is offer their oldest gen phone with 2GB of storage and 512 RAM (I think the 4 already is 512, no?), with the dies that don't meet the highest specs and call it the iPhone [whatever]. 


     


    Thoughts please. 

  • Reply 15 of 103
    solipsismxsolipsismx Posts: 19,566member
    charlituna wrote: »
    They generally don't. And Apple has said they don't build to be cheap. So add that to this whole 30% of current iPhone buyers would go cheap and you have to wonder why, if they want the iPhone bad enough to buy the expensive one, would the company give them the choice to go cheap and lose that money.

    First of all, I'm not a fan of the use of cheap as it not only implies inexpensive within its category but also of poor quality. I think that misses the point of what a less expensive device could offer.

    Second, consider the older iPhones Apple sells at a lower price. Up to 3 years old* and still selling well. There is clearly a market for a less expensive device with less features. These are still high-quality, just not the latest tech. We on this forum aren't likely to buy them but we are not representative of the market.

    Finally, at $450 off contract the iPhone 4 is still quite expensive (and that's not considering tariffs for selling in countries where such a device would thrive). I can see how Apple want a less expensive model for markets where subsidies don't exist. I can also see a path that would cause Apple to build a less expensive device before China Mobile wanted them to.

    Surely they would make a healthy profit per unit but the important question they would have to answer to go this route would be whether they would make more profit than they would by otherwise not investing in such a device. That goes back to your previous concern about affecting sales of the higher-end models, but as already stated they have made that move with older iPhones (and with the iPad mini). I think they would and I don't necessarily think that such a device sold in China, India, and Brasil would need to be sold in The US, Canada, or the UK. That would be the really atypical thing for Apple to do but I think their "boutique" style needs some shaving.


    * Perhaps even older with the season change of the iPhone 4S if they were still selling the 3GS.


    edit: I see I've been pipped by several people. Oops.
  • Reply 16 of 103

    Quote:

    Originally Posted by icoco3 View Post


     


    And that was my point said in a sarcastic way.  They are already offering less expensive models.  I believe they are called iPhone 4S, and iPhone 4.





    If you believe this, I have an iPad I'd like to give you for free. All you have to do is give me $80/month for the next two years.

  • Reply 17 of 103

    Quote:


    Currently you can get an iPhone for free with 2-year contract. Not sure how much cheaper that could be and better than $300. The question is, how many people in the world don't contract with their carrier? Does anyone have a link?



     


    Yes, many folks don't want a contract which locks them into a plan that subsidizes a phone long after the subsidy is paid off.  Hence the popularity (in the USA) of T-Mobile's new offering, or of the options made available by StraightTalk and VirginMobileUSA.


     


    You need a link?  In these very pages...


    http://appleinsider.com/articles/13/04/14/t-mobile-touts-gangbusters-first-day-of-iphone-sales


     


    Nevertheless, I don't see how it behoves Apple to flood the market with a cheap phone returning little to nil profit, and which may cannibalize sales of higer-margin products.

  • Reply 18 of 103
    lkrupplkrupp Posts: 7,438member


    The mind boggles at the two faced comments of many analysts. Apple became the world's most valuable company by generating tremendous profits on large margins. When margins slip a little Wall Street punishes the stock. When growth slows the stock gets hammered, even though Apple's growth is something other companies would kill for. Now an analyst recommends Apple sacrifice margins for market share. You know how Wall Street will react if that happens; don't even ask.


     


    I think analysts should be licensed and regulated. One of the requirements should be that any prospective analyst must have run a business successfully in order to be licensed. Many years ago a college business professor presented a lecture at the local Rotary club I was a member of in which he decided to put his money where his mouth was and start his own business to test his own teaching. He opened a sports bar and restaurant. It lasted less than two years.


     


    My father worked in a Monsanto chemical plant and was an operator. He used to joke about the some of the chemists. In the lab the chemical reaction was entirely predictable, mixing a milliliter of this and a microgram of that. In theory the reaction should scale up according to known formulas. But in the plant you are mixing ten thousand gallons of this with two tons of that, dealing with equipment built by and operated by human beings. The results of the reaction were sometimes quite spectacular. The operators knew when to run like hell.

  • Reply 19 of 103
    solipsismxsolipsismx Posts: 19,566member

    If you believe this, I have an iPad I'd like to give you for free. All you have to do is give me $80/month for the next two years.

    That's for a contract, presumably in the US. His point stands. Apple does make less expensive iPhones. The iPhone 4 is $450 USD, the iPhone 4S is $550 USD, and iPhone 5 starts at $650.
  • Reply 20 of 103
    bleh1234bleh1234 Posts: 146member
    The whole world doesn't get a free phone. Majority needs to buy it outright.
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