How will Apple’s (AAPL) iPhone fare in a crappy consumer economy? It’s still the best phone on the market, but its high pricing — $199, and a minimum $70/month for service — could limit demand.
That’s the gist of Morgan Stanley analyst Kathryn Huberty’s newest report, published today. Key points:
- “Extreme” iPhone interest is down. Some 5% of 2,500 U.S. consumer survey respondents indicated “extreme” interest in buying an iPhone, down from 7% in Feb. 2007. This despite a $400 total drop in the price of a 8 GB iPhone since then, including a $200 drop this past summer.
- The iPhone is still too expensive. Some 46% of respondents said price was a barrier to buying the iPhone, versus 31% for “carrier-related concerns” — the iPhone is restricted to AT&T (T) in the U.S. — and 11% for “design/feature concerns.” (Huberty notes that just 15% of survey respondents thoughts Macs were too expensive.)
- Slower sales momentum in Fall than Summer. Half as many purchases in September and October than July and August.
- As a result, she’s cutting her calendar 2009 iPhone shipments to 14 million from 19 million.
If Apple cut the iPhone’s price by $100, as we’ve suggested they should, Huberty thinks sales could more than double. If AT&T also cuts iPhone subscription pricing by $10 per month — unlikely, but plausible — demand could almost triple to 39 million units next year, Huberty thinks. This makes sense to us.
But that would kill Apple’s margins, right? Not necessarily. Even if Apple shoulders a $200 drop in average sales price — from $600 to $400 — the company only needs to reduce its cost of goods sold by 17% to keep the same margins. Huberty points out that flash memory costs, component costs, and warranty and shipping efficiencies are all targets to squeeze out that 17%.
Piper Jaffray analyst Gene Munster recently reached a similar conclusion: He said last month that Apple could cut the iPhone’s price by $150 in six months and maintain its same margins.
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