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Apple Requiring an 'Innovative, Category-Killer Experience' for Potential Low-End iPhone

Barron's reports on a brief note from RBC Capital Markets analyst Mike Abramsky, who shares some of his "takeaways" from a meeting with Apple Chief Operating Officer Tim Cook and Chief Financial Officer Peter Oppenheimer.

According to the note, Cook and Oppenheimer continue to believe in a "massive opportunity" for Apple in China, seeing the potential for significant growth there with the company's recent explosion to $9 billion in annual revenue for the market being only the beginning.

Many have viewed the introduction of a low-cost iPhone for the prepaid market to be key for Apple's future success in China and many other countries, and the Apple executives reportedly noted that any such device would have to be "an innovative, category-killer experience". Cook and Oppenheimer obviously did not specifically confirm plans to launch a low-cost iPhone, but it is clear that Apple is working hard on finding a way to break into and succeed in that market.
They include the fact that Apple has a “massive opportunity” in China, with the market there “significantly untapped” despite Apple revenue of $9 billion in the country. Despite an “explosion” of devices based on Google’s (GOOG) “Android” operating system, Apple can maintain a competitive advantage through its integration of hardware and software, and its “curation” of the “application ecosystem.”

Regarding a low-cost iPhone, Abramsky writes that “Apple’s primary criterion for launching a lower-end iPhone is an innovative, category-killer experience.”
Other topics of the discussion included word that Apple's gross margins for the quarter may be better than expected due to it currently being a "buyer's market" for components, and the company's efforts to settle with Android handset manufacturers in the numerous ongoing patent disputes.



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101 months ago

Does anyone here know of any harmless weed I can smoke till September ("Fall") ? This wait is killing me.


Normal weed.
Rating: 15 Votes
101 months ago
Will the carriers come out with better data plans to go along with the cheaper iPhone, or will they stay the same? The data plan is what really makes any smartphone expensive to own.
Rating: 7 Votes
101 months ago
Looks like Apple's just getting started. A low cost prepaid iPhone is gonna sweep the legs out from under the competition.
Rating: 4 Votes
101 months ago

Category-Killer ?

What the hell does that mean?

Something that clobbers the competition.

Think iPod touch: annihilated Microsoft's Zune product line. Right now, the iPod touch has no credible competitors.
Rating: 4 Votes
101 months ago
first off, most foreign markets are prepaids plans (you buy your service month to month, no lockin). Mostly because the culture there is to 'buy minutes' (and I assume then GB of 3G as well) I also know part of that is turning on/off services such as data, and the other is floating between a myriad of wireless companies.

So, To get into that market, you need a less expensive phone because no subsidy (and the 2 year lockin to pay off the subsidy) exists, or is tolerated by the market.

2nd, Apple stated up front that they will be aggressive with pricing and models to keep from being undersold. They learned from the Mac Experience, that you must be ready to aggressively protect the brand. The iPod Shuffle is just that device... it's the gateway to the nano, to the touch, to the phone (why... iTunes... no loss of time investment in media management). The term they used early was 'price umbrella' They want that umbrella as low to the floor as possible, to keep other brands from engaging in customer brand loyalty lockin.

Android is to some extent under the umbrella now, however, their capabilities and 'emotional investment' at that level is so low, that it's just a 'cheap phone.' If Apple closes that gap, the brand value ("I can get an iPhone for _almost_ the same price"), That drives for the long term 'halo' (app store, music store, upgrades, iCloud, iPads), which when you have a 'family' of products, is bound to happen.

I know I'd buy my 20 yo daughter a iPhone 4'lite' if it was under $200 and not locked into ATT/Verizon. In a Minute. She has a MacBook, She has a iPod nano. She's graduating from college (poor ATT coverage there, no VZN), and is about to move. a 2 year contract is silly. She has WiFi everywhere. I don't think she needs an iPad (she's a writer... needs a good keyboard). But when she gets a job (hope hope), then she can go get an iPad and not lose her 'investment'

So... a $<300 prepaid solves a lot of problems.
1) it can be the 'free' or $9.99 iPhone for ATT, Sprint, VZN, TMoble in the US
2) it becomes the 'iphone shuffle' (phone, web, 4GB of mem for apps/songs/media,a nice display, and a
3) it lowers that umbrella (you can own an iPhone... or one of those no name android phones that has no experience, and limited support)

Apple's cash allows them to make almost nothing on the shuffle... but it drives the long term (2 years, they'll buy an iPhone) plan. Thats the real beauty of Apple's cash account. They can invest in the future, and make decisions that are focused only on this quarter.
Rating: 4 Votes
101 months ago

Apple will never do a cheap iphone, it cheapens the brand.


when $299 or $249 is cheap?

So they do not sell iPod touch?

they even sell appletv for $99 with some $20 to $30 margin ...
Rating: 4 Votes
101 months ago
Does anyone here know of any harmless weed I can smoke till September ("Fall") ? This wait is killing me.
Rating: 3 Votes
101 months ago

US market is not small. Agreed, it does differ greatly in how phones/service plans are purchased.
If the other global markets have a substantial unsubsidized/prepaid market and offering last gen iPhones cheaply isn't working, then it makes perfect sense for Apple to attempt a cheaper "entry" level model... but it just doesn't seem like something Apple will do. However given the huge emphasis on expanding in the China Market, it only makes sense Apple would adjust accordingly.


Image (http://img.cellular-news.com/story/49021/Android_increases_smart_phone_market_leadership_with_35_share_1.gif)


To me, 25% is quite small. As a scientist, I'd say it's bordering on insignificant when compared to other 75% market share remaining. Also, you haven't considered that the US market is asymptotically saturating when compared to the nascent Asian markets.

Apple will adjust accordingly. They have no chance of drawing customers into high-cost two-year contracts like in the US. They really need to have something that can entice the average consumer in emerging markets, which would be a reasonably priced unlocked phone without a contract. The iP3Gs at 3999 RMB (450€) isn't cutting it. They need some less than half that price (maybe between 99 and 199€).
Rating: 3 Votes
101 months ago

Will the carriers come out with better data plans to go along with the cheaper iPhone, or will they stay the same? The data plan is what really makes any smartphone expensive to own.


That's why my nearly 6 year old flip phone stays on my belt.

Certainly there are times when I wish I could grab some info online, but it's not worth $60/mo to me.
Rating: 3 Votes
101 months ago

not true... for years apple had the $999.99 entry level macbook.. instead of the macbook pro $1200 and up

mac has always offered cheaper options...

this phone will probably be a $99 w/ contract $299 w/o.. *my wish* and start attacking not only the PAYG but regular networks as well.. with a BIG EASTER EGG announcing SPRINT as a new carrier for both iphones


you mention these but they still price people out of the market. i know alot of people that wouldnt pay $999.99 for a laptop.
Rating: 3 Votes

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