Will A Cheaper iPhone Hurt Rivals Or Apple More?

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The Wall Street Journal and Bloomberg both think that Apple could be about to reveal a cheap version of the Apple iPhone. Speculation of this happening has been on and off for years now. However what is a shock is Bloomberg’s estimate of the price range.

Cheaper iPhone: good or bad for Apple?

They are now saying that this could be around $100 to $150 below what they had earlier thought. The Apple iPhone 5 costs around $700 in most markets, while the Apple iPhone from two years ago goes for around $500. This fact is the reason why the market in Apple iPhones is below 5% in some of the major markets, such as Brazil. The experts in the industry have assumed that the retail cost of a low end Apple iPhone would be around $250 to $300. This would be enough to trigger some radical change in the markets around the world.

If Apple were to price the low cost Apple iPhone under $200 this would be equivalent to an earthquake around the world. Devices with touch screens and processors of 1GHz generally selling for under $150 cannot possibly have operating margins that are above 15%. Nokia are excellent when it comes to tight cost control as they have around 70 million unit quarterly phone volumes. However Nokia haven’t been able to get their Asha devices operating margins, which cost less than $150, above the 10% bracket. Of course there is a limitation as to how much you lower the quality of the touch screen along with processing power on a low end Apple iPhone. If Apple chose to put in a resistive touch display or a processor of 600MHz, the iOS app market would splinter.

Should Apple go below the $200 mark, impact on vendors, including RIM, Nokia, HTC and LG would be shocking. At the moment one of the best-selling devices in the UK could be the Huawei Ascend G300. This device comes with a screen of 4 inches, a camera of 5 megapixel and 2.5 GB of storage, for the cost of $160. Of course Apple could deliver an Apple iPhone with similar specs and price their handset at around $150 in Q4 and maybe enjoy operating margins of 10%.

If they did then quite possibly they would sell around 100 million devices within a year, without marketing, providing of course that they could deal with the production fast enough. This could reverse the losses in the market shares that they have seen in Germany and Brazil in just one or two quarters. However the question is whether Apple would be willing to live with a massive hit to margins that the handset would trigger. Being at the top of the mobile software market means a lot, however an Apple iPhone with a cost of around $150 does pose the risk of eating into the sales of the $650 Apple iPhone deeply and it could be permanent. The requirements for performance which has been created within the iOS app market may stop Apple from holding back the budget Apple iPhone with low end components.

Cecelia has the patience of a praying mantis. She spends the day sifting through press releases from all the major brand’s PR reps. From the most ridiculous announcements to those you really want to know more about, Cecelia makes it a point to skim through as many daily as possible so you won’t have to.