Ok. So it’s more or less established that Apple is working on a cheaper version of the iPhone. Although people are calling it the “iPhone Mini”, the possible future phone will probably not be significantly smaller than the normal iPhone. Instead, it will use different materials or hardware to achieve lower costs.
Here are the obvious questions:
Will this reduce Apple profit margins as they move down market? Is this evidence of “commoditization” of iPhones as competing smartphones catch up? Is Apple starting to give up its status as a premium product? (There is a reason why there is no $1000 Rolex or $25,000 BMW.)
Will this complicate Apple manufacturing lines and decrease efficiency? Remember that Tim Cook was the operations guy before becoming CEO. Vertical integration is one of Apple’s main advantages. Will they mess this up by introducing more product lines (similar to HP or Mercedes Benz?).
Or will this cheap phone just be a new gateway to the Apple brand? (I’m a bit skeptical that they need a gateway product though… given how many 12-year-olds I see with iPads and iPhones)
Of course, there is a possibility that Apple might just scrap all these plans. So maybe it’s all idle speculation.
Apple stock is $522.55 right now. It closed at $663.22 on 8/24/2012, the day Tim Cook was appointed as CEO, and $652.59, the day Steve Jobs died of pancreatic cancer.
The timing sounds about right. They’ve squeezed quite a lot out of hipster consumers. Now hipsters like Samsung. Time to play defense and retain market share.
There will still be plenty of people willing to pay a premium for the souped up version though.
iPhone is at the high end of the smartphone spectrum, and as such it makes sense to enter the low end of the spectrum if the market opportunity exists. I think it is unlikely to cause commoditization as even within the “cheap smartphone” market, it will sell at a relative premium to other cheap smartphones. Similar to how after the iPod was introduced, we got iPod mini, nano, and eventually Shuffle. iPod Shuffle competes against $10 players but sells for $50.
I think there is a great need for the iPhone Mini in foreign markets where carriers are unwilling to subsidize the iPhone to the extent of US carriers, however people really like Apple products pretty much everywhere.
I don’t think it’s the price point of American hipster that they worried about…it’s Indian and Chinese consumers. I’m not an expert in this area, but I thought I heard that they don’t have the same deals as western countries where the true cost of the phone is absorbed by the carrier.
the thing USA centric analysts are missing out is the penetration of Apple products in emerging markets (marginal to non-existent)… regardless of the price point of the product, Apple needs to get a device in the hands of the middle class consumer of developing countries and that includes many beyond the BRICS. Its not just selling the handheld/tablet, but the ongoing relationship through the app store/ itunes. People are willing to buy products in the App store with greater and greater frequency. Apple just hit 40B apps sold and that took about good 8 years… i believe they will hit 100B in the next 3 years. People will spend more and more in the app store/itunes on average.
In Brazil for example (the Iphone 5 is for sale although sold out) but you can still buy the 3S - 4S new. I dont particularly believe in the confined to the ecosystem theory but there are hundreds of millions potential new first time Apple buyers and many will become repeat customers. The growth rate in the US may have leveled out but the opportunity in emerging markets can make up for it. An option would be to make a phone/tablet NOT available in the USA, but to the poorer consumer with an entry level option.
There is also a real possibility that in the next generations of phones - Apple actually comes out ahead with the better product… maybe Samsung won 2012 with the Galaxy as the “best phone” but who is to say the Iphone 6 doesnt blow away the competition, there is an embeded call option on future technelogical outperformance. Is the market really already pricing in the next-Ipad/Phone to underperform? The real risk is that it beats expectations.
Yes, that is a good point. Currently, Apple tiers its products by continuing to sell the old one as the “entry” level. This way, they’ll be able to replace “old model as entry level” with brand new models, which will be cheaper to make.
Also, I would question whether Apple is a premium brand at this point. I mean, everyone has an iPhone now. A few years ago the brand was actually perceived as a premium one. Now if your local burger flipper has an iPhone, that’s not good if one of Apple’s objectives is to establish its brand as premium. The other day a guy in the office had this Tag Heuer smartphone, which I didn’t know they even exist. That stuff is like 10X the price of an iPhone 5.
Yes. You are right. However, if they make iPhone Mini, it will still cannibalize US iPhone sales. So, the outcome to profits in unclear. They could potentially segregate their products by national market, but I don’t see them doing this.
Yeah, they’ve tried premium smartphones and it just doesn’t work…yet. People still buy phones for the technology. Although, I can see at some point way down the road high end retailers moving into the smart phone space (watch makers, tiffany’s, etc). Just think about the park avenue women with a 100k ring, 500k necklace, 3k dress, 2k bag, 1k shoes, etc. it’s a little odd to see her pulling out the same phone as the burger flipper mentioned above. As ridiculous as it sounds now, I can see jewelery encrusted or personalized premium phones taking off at some point.
Some rich people like Paris Hilton buy diamond or gold iPhone cases. In the pre-smart phone era, people would get jewels and hang them on phones using that string thing. So, there is indeed a market for this stuff - just very small. For now, this stuff is still considered questionable taste unless you are a rapper or billionaire heiress.
Yeah, and since had never seen those phones I told him “Tag Heuer makes phones now?” I didn’t ask how much it costs but later that day looked up the price range of that stuff, and yeah that’s insane for a phone. Last December another guy brought to the office party an Audemars Piguet watch. Later I also looked up the price of his watch, and it varied between like 25K to 35K. Not sure which exact model he has (automatic, white gold or platinum), but still the range was insane, and the watch wasn’t that impressive actually. After those episodes I didn’t feel guilty with my lowly 6.5K Rolex Milgauss.
Also, now that I think about it, yeah I’m that guy who finds out the price of other people’s stuff.
