Update: On Jun. 8, 2009, Apple announced it would sell a $99 iPhone.
Earlier: Apple will start selling a cheaper, ‘entry-level’ iPhone sometime this summer, for around $99 after subsidy, according to “checks,” RBC analyst Mark Abramsky said in a note this morning.
- The main cost reductions would come from fewer features — not a crappy ‘iPhone nano’ or something without a multi-touch screen. Abramsky thinks it might have a lower-resolution camera, no 3G Internet access or GPS, and a cheaper data plan (~$15/month) with a usage cap. We agree that lowering the monthly bill would help drive iPhone sales, but carriers won’t be thrilled.
- Meanwhile, the iPhone 3G will get feature upgrades, such as a better camera, video capabilities. (See chart below.)
- He thinks Apple could sell 20-30 million of these cheaper iPhones in fiscal 2010, boosting Apple’s smartphone market share to almost 20%.
- Cheaper iPhone will eat into iPhone 3G and iPod sales. And a lower subsidy and lower margins means Apple will have to sell three times as many to make the same gross profit from one iPhone 3G. He expects fiscal 2010 iPhone gross margins to shrink to 35%-37% from 50%+.
We agree that Apple will sell a $99 iPhone sometime this year. But we think he might be overestimating the damage to Apple’s margins. For instance, he assumes that carriers will only subsidise it by $200, half as much as the iPhone 3G — and about as much as they subsidise phones that drive zero data revenues. We think that might be a steep cut. But admittedly, this is guess work.
As this is a platform land grab, Apple should sacrifice some profitability for market share. But we don’t see Apple stabbing itself — that’s not its style.
We expect the low-end iPhone to perform similarly to the current iPhone — any significant reduction in capabilities would not be an iPhone. That said, removing 3G and GPS is plausible, but it would have to offer considerable cost savings. Last spring, research firm iSuppli told us that adding 3G and GPS to an iPhone would only cost about $20.
Meanwhile, we think the most logical high-end updates Apple could add now include more storage capacity, a better digital camera, more colour choices, video recording, the ability to run multiple apps at once, and a more luxurious case.
We’re going to see a lot of predictions about Apple’s iPhone roadmap in the next few months, ranging from the underwhelming to the absurd. Abramsky’s doesn’t strike us as offbeat, but we’re not sure that there’s much of a reason to increase the iPhone’s screen resolution — that could mess up apps, and in its current size, wouldn’t be much more useful than the phone’s current resolution.