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Piper Jaffray Analyst Gene Munster weighed in this morning on the recent reports that Apple is working on a cheaper version of the iPhone.The phone will reportedly be targeted at emerging markets where carrier subsidies are negligible or don’t exist yet. The reports come from Bloomberg and WSJ.
Munster has been predicting a cheaper iPhone for a long time now, and gives the device a 60-70% chance of launching in 2013 based on the recent reports.
Here’s what Munster had to say in a note to Apple investors:
According to the Bloomberg report, Apple could price the phone at $99 to $149. We believe it is more likely that Apple prices the phone at $149 or $199, more likely closer to $199, off contract given Apple’s history of commanding a premium to the market and believe the core competition at that price level would be $99-199 Android devices. We note that the cheapest iPhone, the iPhone 4, currently costs $450 off contract and more in many countries were additional taxes are levied. We note that an off contract iPhone 4 is ~$490 in China and $750 in Brazil, thus the sub $199 price would be a significant discount.
While we expect the lower priced iPhone to carry reduced features like a lower quality screen, casing, and potentially processor, we believe the phone will carry a lower margin than the standard iPhone. We note that reports suggest that the standard iPhone has a 55-60% gross margin. We expect the lower priced iPhone could carry a ~30% gross margin. Given the lower margin, we think the lower priced phone could be slightly dilutive to our 41.5% margin in 2014.
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