Apple's iPad mini seen as 'winning template' for launching low-cost iPhone

Posted:
in iPhone edited January 2014
Apple surprised many last year when it priced the iPad mini at $329 ? more than $100 higher than the Amazon Kindle Fire and Google Nexus 7. But the same premium approach will probably be used to successfully introduce a more affordable iPhone, a new analysis concludes.

JP Morgan


This week, Mark Moskowitz and Gokul Hariharan of J.P. Morgan took a stab at the prospect of a low-cost iPhone. They expect that Apple would sell such a device in the second half of 2013 priced between $350 and $400 ? a cost that may prove higher than some market watchers expect.

But rather than be disappointed by those price points, investors should look to the iPad mini as a "winning template" for Apple's strategy, Moskowitz and Hariharan argue. Instead, they believe a contract-free iPhone priced under $400 would be a "very attractive" product for many consumers.

An iPhone priced between $350 and $450 could also affect market trends and lower what J.P. Morgan calls the "smartphone price pyramid." Moskowitz and Hariharan said that while currently mid-level smartphones don't see much volume, Apple could change the market trends with a reasonably priced iPhone ??just like the company has done in the past with the iPad and iPod.

"Apple usually creates new demand when it steps into a price band ? for example, the $300-$400 price range for tablets did not have much demand (most of the growth had been at the $499+ or $199 range) before the launch of the iPad mini," they wrote. "However, after the launch of Pad mini, this segment has become one of the largest parts of the market, even convincing many suers to upgrade from cheaper tablets to the iPad mini."

JP Morgan


Apple's current crossroads in the smartphone market is similar to where the company was 30 years ago in the PC space, Moskowitz and Hariharan believe. At one point, Apple had more than a quarter of the PC market, but it faced competition from IBM PC clones and Microsoft's Windows platform.

"If Apple doesn't move into the mainstream, then its ecosystem advantage (already has more than 300 million iCloud users) is likely to be eroded by Android, which is growing very quickly," they said. "The move to lower price points may come at the expense of margins in the short term, but we believe that the opportunity to expand the iOS ecosystem could pay off in the long term through non-product revenue streams."

Multiple rumors have pegged the launch of a low-cost iPhone for later this year. Market watchers believe Apple will be compelled to launch such a product, particularly to gain market share in emerging markets like China and Brazil, where customers do not typically purchase phones with a contract subsidy.

One projection from last month suggested a low-cost iPhone could net Apple 11 percent share of that market segment by 2014. But many others outside of Moskowitz and Hariharan have called for Apple to launch an iPhone in the $300 price range, slightly below what J.P. Morgan expects.
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Comments

  • Reply 1 of 30
    slurpyslurpy Posts: 5,179member
    ..and the Mini is still cheaper than Samsung's Note 8 by $100. Not sure what the hell Samsung is thinking with that one, a shittier tablet all around priced significantly higher than the mini. Massive bezel, shitty as **** build quality, thicker, heavier, etc.
  • Reply 2 of 30
    solipsismxsolipsismx Posts: 19,566member
    slurpy wrote: »
    ..and the Mini is still cheaper than Samsung's Note 8 by $100. Not sure what the hell Samsung is thinking with that one, a shittier tablet all around priced significantly higher than the mini. Massive bezel, shitty as **** build quality, thicker, heavier, etc.

    It's $70 and it does have that Wacom digitizer built-in. I have no argument as to why the average user would want that but I do think that tech is still quite pricey would seems to account for the Note prices across the board. I do hope Apple eventually adds a digitizer to their iPad lineup once the costs are reduced.

    The overall design of the Note 8.0 seems to be something designed before the iPad mini debut and I expect their next one to reduce the size and weight to follow the iPad mini. It also uses that horrible 16:9 display which is still smaller than the area of the 7.8" iPad mini; even Acer is using a 7.85" 4:3 display on their $169 tablet.
  • Reply 3 of 30
    r00fusr00fus Posts: 245member

    Quote:

    Originally Posted by Slurpy View Post



    ..and the Mini is still cheaper than Samsung's Note 8 by $100. Not sure what the hell Samsung is thinking with that one, a shittier tablet all around priced significantly higher than the mini. Massive bezel, shitty as **** build quality, thicker, heavier, etc.


     


    And that's the cutthroat android market for you - Scamsung's Note 8 will die a quiet sales death, while Acer's Iconia A1 @$169 will be heralded as the "iPad mini killer".


     


    And how do these manufacturers maintain any margins at all?

  • Reply 4 of 30
    gazoobeegazoobee Posts: 3,754member

    Quote:

    Originally Posted by AppleInsider View Post



    ... Mark Moskowitz and Gokul Hariharan ... expect that Apple would sell such a device ... priced between $350 and $400 a cost that may prove higher than ... market watchers expect. ...


     


    Yes, but if it's sold in different sizes like every other phone, then it will be three prices.  


     


    So, say their low-end estimate is off by 50 bucks, then the cheap iPhone will be $200 for the base model, $300 for the 32GB and $400 for the 64GB, averaging at $300.  

  • Reply 5 of 30
    mattbookairmattbookair Posts: 162member
    If Apple comes out with a phone at $400, analysts was say it's too expensive for emerging markets. If they sell one for $300, those EXACT same analysts will complain Apple's profit margins are going to take too big hit, and that iPhone 5s sales will be cannibalised. Regardless, Apple will make tons of money, as they have in every quarter for the past decade. Analysts aren't really relevant now. Apple is a clear value stock, which continues to have solid growth potential. I can think of fewer more optimal investments while it's below $500.
  • Reply 6 of 30
    SpamSandwichSpamSandwich Posts: 31,395member


    More eye-rollingly goofy analysis. JP Morgan's turn this time.

  • Reply 7 of 30
    macxpressmacxpress Posts: 4,961member

    Quote:

    Originally Posted by MattBookAir View Post



    If Apple comes out with a phone at $400, analysts was say it's too expensive for emerging markets. If they sell one for $300, those EXACT same analysts will complain Apple's profit margins are going to take too big hit, and that iPhone 5s sales will be cannibalised. Regardless, Apple will make tons of money, as they have in every quarter for the past decade. Analysts aren't really relevant now. Apple is a clear value stock, which continues to have solid growth potential. I can think of fewer more optimal investments while it's below $500.


     


    Which is why I think the whole cheap iPhone thing is stupid in the first place. 

  • Reply 8 of 30

    Quote:

    Originally Posted by macxpress View Post


     


    Which is why I think the whole cheap iPhone thing is stupid in the first place. 





    it's not. a cheap iPhone would sweep the prepaid market. Growth in China & India would explode. However, in the US it won't do so well and analysts will cry failure. but to be honest, other than wall street, who cares what analysts think?

  • Reply 9 of 30
    65c81665c816 Posts: 133member
    If Apple comes out with a mid tier phone, it will be *one* memory size. Probably 16GB. I doubt if they want someone buying a 64GB mid tier iPhone that cost about the same as the iPhone 5S.

    Look at what they did with the older iPhone 4S/4 when the 5 came out. Only the lowest memory tier is available.
  • Reply 10 of 30
    michael scripmichael scrip Posts: 1,912member
    it's not. a cheap iPhone would sweep the prepaid market. Growth in China & India would explode. However, in the US it won't do so well and analysts will cry failure. but to be honest, other than wall street, who cares what analysts think?

    China and India have Android phones that retail for $80

    People who can only afford that price will still buy the $80 phone.

    That said... will Apple sell more phones at a starting price of $300 than they currently do at $450? Absolutely.

    But Apple also has to appeal to their shareholders... who love profit margins and other metrics.

    It's a tricky game.
  • Reply 11 of 30
    tjwaltjwal Posts: 404member

    Quote:

    Originally Posted by 65C816 View Post



    If Apple comes out with a mid tier phone, it will be *one* memory size. Probably 16GB. I doubt if they want someone buying a 64GB mid tier iPhone that cost about the same as the iPhone 5S.



    Look at what they did with the older iPhone 4S/4 when the 5 came out. Only the lowest memory tier is available.


    Or they could add $10 to the material cost and make it 32Gb.

  • Reply 12 of 30
    antkm1antkm1 Posts: 1,441member

    Quote:

    Originally Posted by Michael Scrip View Post





    China and India have Android phones that retail for $80



    People who can only afford that price will still buy the $80 phone.



    That said... will Apple sell more phones at a starting price of $300 than they currently do at $450? Absolutely.



    But Apple also has to appeal to their shareholders... who love profit margins and other metrics.



    It's a tricky game.


    Judging by the bar graph on pricing.  If Apple came in at the $200-$400 price range, they'd have a winner.  No need to go lower than that.  I'd say $329 would be a good starting point.  That is if this rumor becomes reality.  I'd certainly buy one of that was the case.  I usually buy the previous year model anyway...and if this price was contract free, even better for me since I currently use 2 iphones (a 3Gs for international travel and a iP4 on contract) and having a single phone for both would be very welcomed!!! ;)

  • Reply 13 of 30
    rednivalrednival Posts: 331member

    Quote:

    Originally Posted by macxpress View Post


     


    Which is why I think the whole cheap iPhone thing is stupid in the first place. 



     


    If you only sell it in emerging markets and as a prepaid phone, I fail to see how it will cannibalize sells or be a major problem for Apple.  Apple has never been afraid of cannibalizing it's own sells if they feel they can sell more devices in the long run.  They almost always release cheaper models of their products....eventually.  


     


    Forget the iPad Mini.  In the past, with Steve Jobs very much in charge, Apple followed this same approach with the iPod.  Once they felt the original iPod had peaked, they released the iPod Nano.  When the iPod Nano peaked, they introduced the iPod Shuffle.  When spyware and viruses first became a major problem for Windows XP, they released a cheaper Mac- the Mac Mini.


     


    When Apple sees an opportunity, they go after it.  Even if that means making a cheaper model of an existing product.  The key is that the cheaper product will ALWAYS be missing features of the premium model and look slightly inferior.  Even the "cheaper" model will have a higher price tag than competitor's products, so Apple can keep both quality and margins up.


     


    While a few of your customers will switch to the cheaper models when they "upgrade" or replace a device, you more than make up for those with new, first-time sells from customers that previously found your devices too expensive.  The strategy has been working for Apple for years.


     


    I fail to see why everyone thinks this new, cheaper iPhone is any different.

  • Reply 14 of 30
    stefstef Posts: 87member
    People who draw diagrams ... hmmm ... Will Apple do a plastic phone?

    Nope. The subsidy phone market messes up this move ... until iPhone dominance in the US slows. Follow the money; Apple gets about $450 per phone. Right now, Apple is expanding contracts with subsidy carriers, not the reverse.

    Nope. Apple's strongest instinct and history is to give buyers more reasons to purchase at a premium price. Leaping into the abyss, aka Dell hell, is not in the cards. Tie this into subsidy prices and the Nope gets louder.

    Maybe. Apple would need distinctive onboard features that allow it to charge enough to keep decent margins on a plastic phone. Possible, but what? Super security. Fingerprinting. Biometrics. A suite of Apple apps. Passport purchasing. Dunno.

    Yep. Wall Street expectations have been reset. This is good. No more is Apple expected to double its sales every week or so. Now it can deploy a cheaper phone with smaller margins without getting creamed. Again.
  • Reply 15 of 30
    tallest skiltallest skil Posts: 43,399member


    iPhone 4S: $350 off-contract unlocked. $0 on-contract.


     


    BOOM. PROBLEM SOLVED. NO MORE WHINING.

  • Reply 16 of 30
    macky the mackymacky the macky Posts: 4,778member


    I think Rollex is missing the boat by not having a sub $10,000 wristwatch! And when in the hell are they gonna add a digital model to their line! You'd think Rollex was living in a cave to not notice what their competitors are doing! And how long has it been since they've updated their UI, their damn watches are boring as hell!


     


    Just saying...

  • Reply 17 of 30
    theothergeofftheothergeoff Posts: 2,081member

    Quote:

    Originally Posted by Tallest Skil View Post


    iPhone 4S: $350 off-contract unlocked. $0 on-contract.


     


    BOOM. PROBLEM SOLVED. NO MORE WHINING.



    pretty much the answer.  Bada Bing.... Bada Boom. 


     


    5s at 650 199 on contract


    5 at 500  99 on contract


    4s at 350 0 on contract


     


    at this point the 4s has no 'new product' build/defect issues, yields are nearing 100%, and absolutely no assembly line costs.   Introducing a 'cheap iPhone' is a financial fool's folly.   lower margins, lower yield, startup costs will drive negative profits for several quarters  (remember, Apple is now where a device has to recoup profits pretty much in 1-2 quarters so it can free capEx for the next big thing, because a product line costs 2B+ to build out.   if your profit is $150 (build/assemble/market/ship cost is 200) that means 12 million devices have to be sold with zero returns to get to 'zero' so if you sell 28 million [out of 150, assuming it's a 'limited' capability product, where most people will buy 5 and 5s and 4s models) the first year, you're 'only' making 2.4Billion the first year.  Hardly worth the effort


     


    advise our clients interested in iPhone bellies to buy at 350.   Mr TS has set the price


     


    Let the grey market deal with the $199 iphone 4 off contract;-)

  • Reply 18 of 30
    hentaiboyhentaiboy Posts: 1,014member
    iPhone 4S: $350 off-contract unlocked. $0 on-contract.

    BOOM. PROBLEM SOLVED. NO MORE WHINING.
    Have you consider the manufacturing cost of the 4S? The margins would be too small. Hence the plastic phone.
  • Reply 19 of 30
    asdasdasdasd Posts: 5,317member
    If Apple comes out with a phone at $400, analysts was say it's too expensive for emerging markets. If they sell one for $300, those EXACT same analysts will complain Apple's profit margins are going to take too big hit, and that iPhone 5s sales will be cannibalised. Regardless, Apple will make tons of money, as they have in every quarter for the past decade. Analysts aren't really relevant now. Apple is a clear value stock, which continues to have solid growth potential. I can think of fewer more optimal investments while it's below $500.

    Most analysts following Apple are a buy.
  • Reply 20 of 30
    asdasdasdasd Posts: 5,317member
    pretty much the answer.  Bada Bing.... Bada Boom. 

    5s at 650 199 on contract
    5 at 500  99 on contract
    4s at 350 0 on contract

    at this point the 4s has no 'new product' build/defect issues, yields are nearing 100%, and absolutely no assembly line costs.   Introducing a 'cheap iPhone' is a financial fool's folly.   lower margins, lower yield, startup costs will drive negative profits for several quarters  (remember, Apple is now where a device has to recoup profits pretty much in 1-2 quarters so it can free capEx for the next big thing, because a product line costs 2B+ to build out.   if your profit is $150 (build/assemble/market/ship cost is 200) that means 12 million devices have to be sold with zero returns to get to 'zero' so if you sell 28 million [out of 150, assuming it's a 'limited' capability product, where most people will buy 5 and 5s and 4s models) the first year, you're 'only' making 2.4Billion the first year.  Hardly worth the effort

    advise our clients interested in iPhone bellies to buy at 350.   Mr TS has set the price

    Let the grey market deal with the $199 iphone 4 off contract;-)


    Oh FFS those are American contract prices. In the rest of the world there is no such thing as X price on contact because there are different prices for different contracts.

    And the problem with last years model is you get less software support, 1 instead of 3 years, and you compete with your own secondary market. For that reason the iPad mini is selling more of the iPad "mix" than the old iPad 2 vs the 3.

    We had these utterly dim arguments last year against the iPad mini.
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