Apple likely to debut $199 iPhone as low-cost smartphone market hits $135B in 2013

Apple's least expensive handset, the iPhone 4.

A Piper Jaffray analysis of global unlocked smartphone prices solidifies the firm's expectation that Apple will launch a low-cost iPhone later this year, with the new handset purpose-built to compete in the untapped market estimated to be worth $135 billion in 2013.

Following up on his report from early January, analyst Gene Munster on Tuesday reiterated his stance that Apple is likely to release a more affordable iPhone targeting developing regions like China and India.

"We believe a lower priced iPhone will be a positive for AAPL shares for two reasons," he writes. "First, despite its lower margin, it should accelerate gross profit growth given the size of the low-end market (we estimate $135B in 2013); second, investors have historically bought into AAPL ahead of major new product releases."

By taking available pricing in six international markets â€” Germany, UK, France, China, Brazil and India â€” Munster was able to come up with a snapshot of the low-cost segment. He notes that the lowest priced iPhone, the iPhone 4, is still 133 percent more expensive than the global average for a low-end smartphone, suggesting Apple is only skimming the top of the market.

As for Apple's other handset models, the iPhone 5 is 19 percent more expensive than comparable flagship handsets from rival manufacturers, while the iPhone 4S is 48 percent more than mid-range devices. This means that Apple's biggest gap in pricing is between seen in the low-end segment.

Source: Piper Jaffray

"This low-end segment is important given we estimate it is a $135B market in 2013 that Apple is currently not participating in," Munster writes. He notes the sector will account for 60 percent of smartphones, or 540 million units at a $250 average sales price.

In the core markets of China and India, the cost of an average low-end handset is $138 and $140, respectively. The iPhone 4 sells for an average of about 265 percent more in those countries. A similar report on Monday said Apple could triple its share of the addressable Chinese market and add billions of dollars in revenue by launching a low-end device.

Munster expects Apple to debut an affordable $199 iPhone in the September quarter and believes the company could sell around 37 million units over the remainder of 2013. That number would jump to around 96 million units for 2014 and 170 million units in 2015.

Rumors claim Apple is working on a device for emerging markets, with the unit built from low-cost materials like plastic.

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75 Comments

desuserign

said about 11 years ago

For sure there's a market, but Apple won't go there until there's a profit.

tallest skil

said about 11 years ago

Just have Apple buy the entire low-cost smartphone market and shut it down.

And no, it's no more "likely" now than when you analysts lied about it in the first place. I definitely see a $299 off-contract iPhone as possible, but $199 creates a problem of both profit and manufacturing.

gwmac

said about 11 years ago

They sell an iPod touch at a profit for $199, why not an iPhone? Reduce memory to 8GB instead of 16GB, smaller screen back down to 3.5" along with a plastic exterior and it could be done. Basically an updated, slimmed down 3GS with lightning connector in multiple colors. I am not saying Apple will or should do this, but I can at least see that it is feasible if they so chose. I think a much more likely price would be $249 to as high as $299 for such a phone. Even in this cheaper market segment Apple would still rather be the premium brand. There are valid reasons for and against this move but I tend to side with Gene on this one. No reason to completely abandon a $135B market. Many of those people buying cheap phones today will buy flagship models in the future so why not get them into the Apple ecosystem and familiar with iOS now. It would also be popular for children and people without contracts or subsidies in developed countries as well. The shuffle didn't destroy the iPod brand, the mini didn't cause irreparable harm to Macintosh line and neither would a more affordable iPhone.

crazy_mac_lover

said about 11 years ago

When iPhone mini comes out , soon the fuxking analsist will say it will affect the sales of iPhone and apple gross profit margin will decrease . Look at ipad mini , as soon as it comes out , AAPL keeps dropping .

antkm1

said about 11 years ago

Quote:

Originally Posted by gwmac

They sell an iPod touch at a profit for $199, why not an iPhone? Reduce memory to 8GB instead of 16GB, smaller screen back down to 3.5" along with a plastic exterior and it could be done. Basically an updated, slimmed down 3GS with lightning connector in multiple colors. I am not saying Apple will or should do this, but I can at least see that it is feasible if they so chose. I think a much more likely price would be $249 to as high as $299 for such a phone. Even in this cheaper market segment Apple would still rather be the premium brand.

There are valid reasons for and against this move but I tend to side with Gene on this one. No reason to completely abandon a $135B market. Many of those people buying cheap phones today will buy flagship models in the future so why not get them into the Apple ecosystem and familiar with iOS now. It would also be popular for children and people without contracts or subsidies in developed countries as well. The shuffle didn't destroy the iPod brand, the mini didn't cause irreparable harm to Macintosh line and neither would a more affordable iPhone.

I agree with most of what you're saying here. but I think the Nano hurt the iPod Classic quite a bit. And it's going to be tough to design and iPhone that is a lot less expensive yet not completely cannibalize the flagship iPhone like the Nano did to the Classic. I know Apple doesn't care about cannibalization from their own line, but the iPhone is the cash cow. The only way they can do this is to rethink the iPhone for the emerging markets. Maybe not by reducing build/material costs, but to rethink it in a way that just not as feature rich. I've argued it your way and the opposite on other thread yet neither argument seems feasible for both an the flagship device to stick around and a less expensive version to emerge.

when I travel to China the most common phones i see in the subways and out are the 4"-5" smartphones, and the older crackberry candy-bar feature phones. And the later is what Apple needs to re-imagine. Not the Smartphones. I don't think it's going to happen by just reducing the build-costs and material costs alone. THe form-factor and features are going to have to be re-thought in order to find a less expensive solution without totally cannibalizing their flagship device. And I DON'T think its going to be an iWatch or any other kind of wearable device.

Addition: I think the reason Apple hasn't come out with a lower cost, feature-light, device yet is even they can't figure out how to make a less expensive iPhone that doesn't take away from the flagship model. I think they are probably spending a LOT of time trying to figure out how to do this, but coming up short. How do you make an iPhone less expensive and give the same iPhone-like experience, but not completely obliterate the flagship device? Ask yourself. If you had the choice of an iPhone experience that was encased in Plastic or some other less expensive material, yet it does everything the flagship model does and is subsidy-free and $700 cheaper, why would you even consider the flagship model? because you like to throw away money on something you'll replace in 1-2 years? No, you'll buy the cheaper one, knowing it didn't cost you anything and it's easier to replace. So then why keep the flagship model around?

It's going to have to be non-retina, smaller SDD, less expensive materials, lesser components. and probably reduce the amount of Apps or even drop the App store all together. But then, why buy it or even build one at that point? So i think that's the problem Apple sees, and that's why I think they are going to have to NOT rethink a cheaper iPhone, but rethink a feature Phone.

I think this strategy could also work in the Western markets too. Because in those markets. Everyone that wants a smartphone has already made their choice. It's saturated. So those people now have moved to the iPad or Mini iPad for their secondary option. THose (like me) now might be thinking: "Well, I used to use my phone for everything, I have my iPad and/or Mini. So no I use my phone for only a few things. I don't need all of what my iPad does when i'm out. I only use phone, sms, email and maps...maybe the occasional web browsing and games on the train...and this damn phone is costing me $90-$120/mo. that's crazy!!!"

There needs to be some very distinguishing factors that clearly separate the flagship iPhone to this rumored less-expensive iPhone. there has to be a compromise without sacrificing user experience. If you simply just make the iPhone less expensive but put the same iOS in it, there will be no reason for anyone to buy the more expensive version. Every Apple product line has clear separations between the models. LIke the Nano to the Classic. Much smaller, lighter, but very limited SDD. The iPad Mini to the Classic, it's lighter, thinner, same experience, but no retina and slightly lesser processor. The same goes with the MBP+r and the MBA. Lighter, slower, no retina. THey could go this way with the iPhone, but then they would have to drop the other iPhone models being sold.

So yes, the argument of keeping the same OS but reducing materials (lighter, thinner, lesser materials, processing power and lower quality components) could work, but in the case of the iPhone, I think it will go the same as the iPod Nano did to the classic. Nobody bought the classic after the Nano came out. the nano was almost the expendable iPod model. If it broke, throw it for a new one. I think it's going to have to be more than just materials and components that are the compromise. At the price points we're talking about (the $99-$199 range) people replace these kinds of phones almost annually, sometimes quicker. And really gives no reason to upgrade to something better. IT's going to have to be like an updated iPhone Gen 1 for $199 vs. the iPhone 5 for $699.

What if...Apple made a phone that took away the traditional voice functionality and re-designed the Phone App to Data-only phone App with a iCloud phone number that could connect just like a voice phone App? Google Voice basically does this already. It works with Phone and SMS. This could change everything. Then there would be no need for the iPod Touch and the iPhone to both co-exist. That might get some major push-back from the Cell industry, but it would be a bold move to the future of phones. All Data. No more Voice/Text. Then, they could drop the Touch line and just have an iPhone line. They could even update the iPod Nano with a mic. and speaker and there's your iPhone Nano.

I think now that more and more Cell companies (in the western world) are dropping the subsidies, the future is looking more an more to the All Data plan.