updated 11:00 pm EDT, Fri May 3, 2013
JP Morgan analysts think Apple will hit 'sweet spot' in prepaid market
Two analysts from Wall Street investment bankers JP Morgan have produced an analysis of possible scenarios for the rumored (but not announced) "low cost" iPhone model expected to debut later this year, aimed at the large worldwide "prepaid" market. Based both on research of existing entries in that market space as well as Apple traditions, Gokul Hariharan and Mark Moskowitz believe that when Apple does bring out the device, it will not be a cheap "bargain" iPhone but instead a "mid-range" entry that should cost between $350 and $400.
While still expensive by the standards of some developing markets, the price would represent a substantial discount from the existing iPhone 5, which costs more than $650 to purchase without a contract in the US and substantially more elsewhere. The pair believe Apple will follow the course set by the introduction of the iPad mini, which was far from the lowest-priced entry in its 7-to-8-inch category but significantly less than the full-size model -- and quickly came to dominate sales, reports AllThingsD.
The key, as seen in both the iPod nano and iPad mini products, is to make an iPhone that is very distinctly different from the premium iPhones, but still bearing the core features consumers want in its own high-quality design. This cheaper iPhone, which would be more affordable to buy outright, would sit comfortably in the middle of the range of smartphone prices -- a better unit than the junky low-end, not as expensive or bound to a contract as the flagship smartphones -- which is, by comparison with the two price extremes, lightly populated with worthwhile competitors.
The theory is in keeping with Apple's desire to maintain quality standards but find less-expensive options wherever possible. The Mac mini, designed from the ground up to be an entry-level Mac to entice potential "switchers," has been a popular mainstay in the desktop line and found additional uses as media- and file-server class devices. A lower-cost iPhone could likely have the effect of leading the industry into producing more mid-priced, higher-quality smartphones -- which could both accelerate the transition from feature phones as well as provide incentive for low-end smartphone users to upgrade a step further up to a better, more capable smartphone without a dramatic change in cost.
A "no-contract" iPhone could also be popular in markets beyond the "developing" economies, though the sometimes-accurate trade paper DigiTimes reports that the low-cost model would launch only in limited markets at first to gauge reaction. It would likely compete head-to-head with Samsung in countries where the Korean phone maker has done well, particularly China, India and Japan. A North American launch could also work for the sizeable prepaid market in the US, and make a desirable budget no-contract option for the holidays, students, international travellers, kids and other demographics.
The report from DigiTimes claims that Apple will produce less than three million units in its first run, suggesting a limited release if true. The JP Morgan analysts believe that Apple could "steal" some 20-25 percent of the mid-price prepaid phone market with their version over the course of a year in a range of devices that is currently dominated by Samsung.