After Meeting With Apple CFO, Analyst Believes Lower-Cost iPhone Makes Good Sense

iphone_5_black_whiteFollowing recent meetings with Apple Chief Financial Officer Peter Oppenheimer, Morgan Stanley analyst Katy Huberty today issued a research note sharing some of her takeaways from those discussions and her views on Apple's future plans.

While she did not disclose any specific information shared by Oppenheimer, Huberty did come away feeling that Apple will be working hard to expand carrier partnerships and distribution for the iPhone to drive growth in Apple's largest segment. She also believes that Apple is working to develop new services to take advantage of the "stickiness" of the Apple ecosystem.

On the topic of the lower-cost iPhone which has been the subject of increasing rumors, Huberty makes the case Apple's experience with the iPad mini and continued strong sales of the iPhone 4 that saw the company experiencing shortages throughout the fourth quarter of 2012 are driving the company's efforts to focus more on cheaper offerings.

We also see several signs that a lower priced iPhone makes sense: 1) iPad Mini is expanding Apple's customer base with 50% of purchases in China/Brazil representing new customers to the ecosystem. 2) Chinese consumers show a desire to purchase the latest version of iPhone (instead of discounted older generations). 3) iPhone 4 demand surprised to the upside in the December quarter. Even at a low 40% gross margin and 1/3 cannibalization rate, we see an "iPhone Mini" as incremental to revenue and gross profit dollars.

Huberty goes on to note that she believes Apple has maintained its long-standing approach to product decisions under the leadership of Tim Cook and that the company remains committed to innovation with a strong product pipeline under development. Despite continued investments in that pipeline, Huberty believes that Apple is likely to return more cash to shareholders as its cash holdings continue to grow.

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Top Rated Comments

iMikeT Avatar
147 months ago
As usual, I stopped reading at "analyst".
Score: 11 Votes (Like | Disagree)
cojocu Avatar
147 months ago
As usual, I stopped reading at "analyst".


This.
Score: 5 Votes (Like | Disagree)
iMcLovin Avatar
147 months ago
why lower cost? its already free with carrier subsidies.

where would this have its advantage? only outside USA?

I never understood americans view un subsidised phones?? It seems you think you are getting the phones for free, you even refer to the subsidised price when you talk about how much the phones cost. Do you know that you are actually paying more for the phone than they would cost paying full price right away? ...but the price is baked into the subscription...and the more money you pay to your carrier, the less you will have to pay for the phone.

We have these offers in Europe too, and most people use them, but at least we know it´s not a free phone.
Score: 4 Votes (Like | Disagree)
ctdonath Avatar
147 months ago
At some point the current target market gets saturated. Much as I love :apple: products, I'm only gonna have 1 iPad, 1 iPhone, 2 Macs (home & work) at a time, and (when available) 1 iWatch, upgrading each no more than every 2 years (and probably a lot less often); likewise for most current customers. The $500-$5000 market audience is limited and heading toward saturated. More products in that range will not sell proportionately more.

If :apple: is gonna grow more, they have to address & expand fringes. Higher cost devices is a exponentially-decreasing category. That leaves cheaper ... so of course lower-cost iPhones make sense. Make 'em more akin to iPod Nanos with phone capability.

Stickiness works. I bought an iPod Shuffle, and now I've got 4 iDevices in front of me, 4 more at home, and write iOS apps for a living. I have been assimilated. Resistance is futile.
Score: 4 Votes (Like | Disagree)
Squilly Avatar
147 months ago
I still hate the idea. Apple is known for durability. Lowering that destroys their image imo.
Score: 4 Votes (Like | Disagree)
AppleScruff1 Avatar
147 months ago
The problem isn't lowering the price of the phones. It's lowering the price of phone plans. When you have service providers like Verizon, AT&T, etc. sitting on an ever growing mountain of cash that they GOUGE from us every month, you have a problem.

ROFLMAO! Yea, those carriers are gouging while poor Apple's cash pile is only $137 billion. Thank goodness Apple sells their products for a minimal profit to help out the poor consumer.
Score: 3 Votes (Like | Disagree)