Printed from http://www.electronista.com

iPhone could hit $99, rule smartphones

updated 09:40 am EDT, Mon October 27, 2008

Needham on 99 iPhone

Apple has the room to cut the price of the iPhone to where it could take command of the smartphone market, analyst Charlie Wolf of Needham Research says today in a research note. The financial expert estimates that the average, unsubsidized price of an iPhone 3G in the summer was $666 and so would give Apple a nearly 50 percent gross margin on each sale as well as a heavy subsidy from AT&T of $450. Both give Apple a large amount of space to adjust its price and could see the phone maker drop the price of an 8GB iPhone to $99 while still supplying a comfortable 42.3 percent margin.

The company's dramatic growth in non-GAAP revenue could also give Apple a significant amount of breathing space to play with the iPhone's price by cushioning more substantial price cuts.

Any such price drops would be potentially devastating to competitors in the market, according to Wolf. The analyst believes that a $100 cut in the iPhone 3G's advertised price could "double or triple" projected sales and quickly overtake most other smartphones on the market and leave only successful but "niche" smartphone manufacturers like Research in Motion, which produces the BlackBerry.

Price drops have regularly contributed to phones leading the sales charts, particularly in the US where subsidies aren't often as steep as in Europe. Although it had a strong launch, the iPhone 3G was outsold by RAZRs in the summer due to the Motorola's phone free or near-free pricing with many carriers. BlackBerries have also taken two out of the top five positions in NPD phone sales figures for the summer as the Curve and Pearl began selling for $100 or less on certain contracts.

In contrast, many Palm OS and Windows Mobile smartphones often sell for more than $100 when subsidized, while Nokia rarely offers its smartphones tied to carriers in the US and currently prefers to sell most of them as unlocked models at higher prices.



By Electronista Staff
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Comments

  1. danviento

    Fresh-Faced Recruit

    Joined: Dec 2005

    +2

    Can I get a BS on this 1?

    As it stands, Apple's new pricing plan, which drops the cost of the hardware and subsidizes it into the phone plan, has you paying $20 MORE per year for the same service. The TCO of an iPhone has gone up, despite the lower "deposit" fee at the outset.

    When the iPhone first came out, the basic rate of around $60 and unlimited data rate at $70 were very attractive. I was even considering dropping my current service for that low rate, which blew BB and other data plans out of the water.

    When you have the higher rate, though, it becomes less appealing. Certainly, no one else's, not even the copycats, interfaces and service match the iPhone, but when you don't have a competitive data rate, you're not going to get as many switchers from groups that didn't need and don't necessarily need the internet connection for business or personal use. Before the attraction was to merge your iPod and phone into one device for this particular market with such a low price. Now, the attraction is gone.

  1. Guest

    Fresh-Faced Recruit

    Joined: Nov 1999

    +6

    More pundit nonsense

    Ugh. I need to stop clicking on these articles. MacNN, AppleInsider, Electronista, et. al., have a bad habit of posting ramblings from analysts with deceptive sounding headlines.

    Apple could release a $99 phone. They could also offer a free bar of gold with every purchase. They could do anything. I'm convinced that these people just make c*** up, knowing that sites like this will post just about anything with the word "iPhone" in it.

    I'm also curious as to the accuracy percentage of Mr. Wolf's Apple predictions. It wouldn't surprise me if they were well below 25%.

    Matt A

  1. bobolicious

    Forum Regular

    Joined: Aug 2002

    +3

    More features...

    ...such as video may juice the demand curve or even upgrade curve to keep margins high - I suspect early adopters are far less price sensitive & may drive the market until the device is 'finished'... Indeed I am told unlocked units are now readily available @ $600 price point... Just don't lose it!

  1. Guest

    Fresh-Faced Recruit

    Joined: Nov 1999

    +3

    AT&T only

    One has to remember that in the US the iPhone 3G ONLY works on the AT&T network, not Verizon, T-Mobile, or Sprint. Dropping the price to $99 would eliminate most of the other phones in AT&T's line up (RIM Bold, Samsung Blackjack, etc.). However, you would have to believe that more people would switch carriers to get an iPhone at $99 than would switch at $199

  1. Guest

    Fresh-Faced Recruit

    Joined: Nov 1999

    +2

    No change before June

    Apple updates iPods in September (except 2001), and iPhones in June. Anyone who tells you otherwise is either uninformed, or trying to sell you something.

    The price and hardware features will remain unchanged until June. Bet on it.

    I expect the third generation iPhone to be nearly hardware-identical to the current models, but with more storage space. Definitely the same size/res screen.

    Maybe, maybe, maybe more available RAM (128MB is pretty lean) - but then they risk fragmenting the app store into "need<128MB" and "need>128MB" apps. As it is, you don't have to read system requirements. All apps work on all iPhones. Period. Don't underestimate how much Apple thinks that simplicity-in-shopping is worth to them.

    The major "selling" point of the June 2009 iPhone will be a new 32MB model. The price of the 16GB will drop to where the 8GB is now, and 8GB will be discontinued.

    ...but there will be a $99 inventory blowout sale of the 8GB models on the online store, making everyone who buys one believe they are getting a bargain. This will increase sales, gets lots of free press, and move inventory without devaluing the iPhone. It will still be a "$200 phone" in the minds of shoppers, and Apple will remain an "aspirational" brand.

  1. Guest

    Fresh-Faced Recruit

    Joined: Nov 1999

    +1

    No change before June

    The major "selling" point of the June 2009 iPhone will be a new 32MB model....32GB.Damn fat fingers. (and the tech press and the gadget geeks will cry "Apple is going to have to work harder if they expect to win MY business. Meanwhile, it will break record sales"

  1. Constable Odo

    Fresh-Faced Recruit

    Joined: Aug 2007

    -2

    Only a RAM upgrade???

    Is that the best Apple can manage with 25B sitting in the bank. Where's the 3.2 MP camera or the business model iPhone with eight hour battery life to play all those terrific games during working hours.

    All I'm saying is that the iPhone really could use a couple of hardware upgrades aside from just memory due to the fact that other handset companies are going to throw a lot of hardware at the iPhone. Better displays, better cameras, better battery life, etc. These upgrades are surely going to cut into iPhone sales.

  1. Guest

    Fresh-Faced Recruit

    Joined: Nov 1999

    -2

    Don't want to be a RAZR

    First, we don't want Apple's iPhone to crash and burn like the RAZR of the cellphone world. Plus, if too many iPhones make it to market, the network will be crushed. Let's grow the iPhone market, only as quickly as the network can accomodate them.

    Second, the AT&T;subsidy is NOT $450. You have to calculate the Average Selling Price at retail. Some will buy $200 8gig iPhones and some will buy $300 16gig iPhones, like I did. Others don't qualify for the discounted price and will have to pay $400 and $500, like my brother. When you add it all up, the ASP is going to be probably around $300.

    If the revenue to Apple is $660, then the subsidy is about $360.

    If you drop the iPhone's entry price to $100, then adding in the subsidy of $360 gets you to $460. Since, Apple's current cost is about $315, 47.8%GM x $660, you have a gross profit of about $145, or 31.5% GM.

    That's doable, but if Apple were to release a $99 iPhone, it'd be smarter to offer the old EDGE one as your $99 iPhone. It's not only cheaper to make, and cheaper for the consumer, but EDGE has better coverage and the data plan is cheaper. Drop the $5 SMS fee, and your data is only $15. With the $40 voice, you have a monthly bill of $55, in line with T-Mo's cheapest plan for the G1.

  1. Intosh

    Fresh-Faced Recruit

    Joined: Sep 2008

    +2

    That's a new idea!

    Why don't they just offer the phone for free? They'd still enjoy a hefty profit margin. They would kick all other manufacturers out of this smartphones business and dominate the whole wide World of smartphones. Isn't that brilliant? [sarcasm]

  1. Guest

    Fresh-Faced Recruit

    Joined: Nov 1999

    0

    unlikely

    Just like the PC market Apple are not looking to be the biggest, just the best. Somehow I don't see Apple their strategy of competing on quality to become the bargain basement king. They don't need to.

    All they need to do is add a few features each year and the fan boys and girls will re-up to the latest s*** new model. Guaranteed future revenue.

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