Thursday, December 06, 2012

The low-cost iPhone rumor emerges from hiding, still has legs

In addition to pictures of a purported iPhone 5S, another iPhone rumor arose on Wednesday. The idea of a lower-cost iPhone is again on people's minds.

It's an idea that has legs. In many countries, there's no subsidy, and in those countries -- in particular, emerging markets -- a low-cost iPhone could make hay.

Low-cost Android devices hold sway over such countries, at price points the iPhone cannot match, at least currently.

However, Barclays analyst Ben A. Reitzes wrote the following in a note to investors on Wednesday:
We recognize that a key test of Apple's long-term model will be whether the company can capture the growth associated with a new wave of emerging market consumers who could enter the smartphone market through low priced Android devices.

In our opinion, Apple can benefit from those upgrading to higher end smart phones later on but the company also needs to make sure it can "hook" customers into the Apple ecosystem early enough in the upgrade cycle to prevent more customers from developing loyalty to Android.

We imagine an iPhone at a low price point to capture the initial smartphone purchase from customers upgrading from feature phones — pushing new customers into the Apple ecosystem. We believe Apple can sell a phone with an inexpensive casing for emerging markets and a (bill of materials) below $150.
This sort of pricing has been mentioned before. It's also somewhat behind the iPad mini. Although the size aspect of the device has been mentioned as a driver, the cost -- although still north of smaller Android tablets -- is another, as well.

Reitzes speculated that Apple will look to enter the low-end smartphone market in the next one to two years with a new, cheaper model.

While Apple continues to sell its two previous-generation handsets alongside its iPhone 5, thus adding lower price points, for those in emerging markts, where no-subsidy pricing is pre-eminent, they are still too expensive.

For example, currently, an 8GB iPhone 4 is free with a new two-year contract. However, without a subsidy, that same phone costs $450.

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