Apple Working On Cheaper, "Commoditized" iPhone

Tyler Durden's picture

In what may be very disturbing news for the AAPL-borg collective and the broader Hotel AAPLfornia, WSJ is reporting that Apple is working on a lower-end iPhone, a move which it dubs "a big shift in strategy as its supremacy in smartphones has slipped." To call this a big shift is a major understatement: no longer will Apple have the premium, ultra-luxury, aspirational product cache, which for a broad selection of its customers was the primary reason to keep buying iteration after iteration of the company's releases and lining up in droves around the block on release day. Especially since anyone seeking a "cheaper" iPhone could just buy a previous generation iteration of a gadget whose new product launch cadence is now jumping to twice a year, soon thereafter three times, and so on.

This development certainly changes the demand dynamic, not to mention the profit margin aspect of the company's flagship revenue and profit product, as it now will have to directly compete in a market in which it has virtually no experience, and which is dominated by OEMs and other companies that are far better equipped to deal with a war of margin attrition. It also means that going forward, just like the iPad Mini was a smashing success, in cannibalizing regular iPad sales, so ever cheaper iPhone products will increasingly compete with their more expensive, and higher margin alternatives, until the near unlimited cash flow ability of AAPL itself, so long taken for granted, is put into question and as revenues, profits, and EPS expectations all have to be revised lower.

Yet saddest for all those who have watched the progress of this iconic company over the past decade from the sidelines regardless of sentiment, the consumer products "Ferrari" that Steve Jobs built, just announced it is launching its own Yugo.

From the WSJ:

Apple Inc. is working on a lower-end iPhone, according to people briefed on the matter, a big shift in strategy as its supremacy in smartphones has slipped.

 

While Apple has explored such a device for years, the plan has been progressing and a less expensive version of the flagship device could launch as soon as later this year, one of the people said.

The cheaper phone could resemble the standard iPhone, with a different, less-expensive body, one of the people said. One possibility Apple has considered is lowering the cost of the device by using a different shell made of polycarbonate plastic. Many other parts could remain the same or be recycled from older iPhone models.

Apple, Cupertino, Calif., could decide not to move forward with the device. An Apple spokeswoman declined to comment.

The move towards multiple iPhone models is new territory for Apple. The company has prided itself on prioritizing profits over scale, offering a relatively small number of products targeted at the high end. While Apple has long offered different styles of iPod music players, the company has sold only one main new iPhone model, with different storage capacities, at a time since launching the smartphone in 2007.

All that said, this evolutionary step (the same taken many times in the past by such once luminary firms as, i.e., Nokia and Motorola) is not Apple's fault: the company is merely doing what it can and should, and responding to market developments in a world, in which the end consumer has increasingly less disposable income.

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Cursive's picture

Holy LOL!  Steve Jobs is rolling over in his grave.

Buckaroo Banzai's picture

If this has been in the works for years, as the article suggested, then Steve Jobs must have given his blessing.

It's a terrific idea. With the kind of economies of scale that Apple can deploy, combined with the premium price they can command for the Apple cachet, they can almost certainly be a profit-margin leader in the dumb-phone/feature-phone marketplace.

Panafrican Funktron Robot's picture

"combined with the premium price they can command for the Apple cachet"

Said the guy that read 0% of the article. 

MiguelitoRaton's picture

In other news, Rolls Royce announces a brand extension in the sub-compact category...and expects no brand dilution.

MiguelitoRaton's picture

If these low-end versions are as fragile as the regular ones, I hope they sell them in disposable 6-packs.

JackT's picture

We all k is the hardware components are virtually the same across all devices. What makes Apple unique is the aesthetics within its user interface. As well as its base level application requirements and review process.

Take a look at the visuals contained within apps on the AppStore and compare them to those found on Google's Play.

Apple's play to keep strict control over device form factor and uniformity over its OS (not letting 3rd parties pick it apart and skin it) which is something that Google has finally figured out (by making its code base no longer open source).

In essence Apple is 50% form factor and 50% interface. Just as was the case with desktops Apple will not be #1 but rather the premium alternate if even if its shell is transformed into something cheaper

Manthong's picture

That strategy worked great for Packard in the 1950’s.

Packard never lost its cache’ and brand cult buyers are still standing in line whenever the next low cost Packard automobile is released.  

JuicedGamma's picture

Broke my iPhone 3 three times and finally gave up on it.  The HTC with no case has hit the floor, the cement, etc and doesn't have a scratch, so there is something to what you're saying about the fragility of iPhones.

jmc8888's picture

Or he could have been the one holding it back.  Like the ipad mini.  Which might just mean they've decided to break all of the man who saved the companies advice. 

I wouldn't say it's terrific.  As the article stated and is pretty obvious, people that used to buy a $500 phone might now buy their low end version.  Good for consumers (well not really..another sector where people will still overpay), but not for investors.

If you ask me, many of their versions of iPhones already are low end (well medium end).  Before #5 there were some $200 or less phones that were superior to the iPhone.  Bigger screens.  More flexible OS.  4G.  In a sense, people have been buying phones known as iPhone because they have some unique but mostly worthless differentiators.  Thinking those differentiators made it high end, when everything else screamed middle of the road...except the price.

So if their premium phone often is below medium budget phones, what will their budget phone be?  $300 for a $100 phone? I literally liked my $200 phone better than my friends 4S and I bought it months earlier. 

I don't see this bringing in a new wave of Apple enthusiasts.  I see it more as allowing current Apple enthusiasts the option to continue being one for cheaper.   Might slow attrition to other brands.   But seems like a strategy to minimize attrition rather than expanding sales.   I wouldn't say it's impossible that they find their way and compete down there successfuly.  But it's far more daunting then anything else they've had to deal with on the phone front, and even the enthusiasts are starting to get sick of paying rib eye prices for chuck steak.

Shortening the cycle is good until it isn't.  Once again they've already shorterned to the point it's too short.   That will piss people off or get people to buy 'every other one' instead of 'every one'.   Some of those 'every other ones' might also be the cheaper one too.  The more they shorten it, the more likely it becomes 'every three phones'.  Phones can easily last five years if you don't drop them.

The top line may or may not increased based on the actions of this decision (aside from anything else), but one thing is for sure, margins will suffer.  Adding more sku's, cheaper sku's, and bringing them faster will assure that.  Even one could, but all three? 

They're starting to get caught up in their own propaganda game.  They can't sell the older phones as the cheaper phones, they have to create a fake cheaper phone, with all the associated costs of bringing another sku online.  It's nice to know they may use the components of some of the earlier iphones in there, but it still is a new SKU.  If they promote it, then a new advertising cost.  So on and so forth.

We've all seen, probably dozens of times, when something 'hot' lowers its status, it withers away.  Apple also risks that.

Seems a bit vain to create an ipad mini and a cheaper iphone rather than just sell your older products for cheaper.  Especially since the cycle is short and about to be even shorter. 

Glass-Steagall

TraderTimm's picture

There's a parallel here to the fashion industry - clothes that are perceived to be 'cool' are priced just out of reach of the lower end, but the high end customer saves them on sales.

If anybody can buy one, the uptight fanbase may not want to be seen with the next iteration, even if they maintain a tiered price/product strategy (which I personally doubt). Lets face it, half the reason anyone was toting these phones around with the brilliant white earphones was to be "seen".

When billy bob can pick one up at WalMart, that'll take the exclusive allure away, which in turns alienates all those precocious fans willing to pay a higher price. Welcome to razor-thin marginville Apple, population - You.

 

billsykes's picture

 

Or it could be a sign of passing the touch- remember when Nokia had huge share then Motorola came out with their Razor flip phone, candy bar phones proclaimed dead and then came a

company called Blackberrry (remember blackberry thumb?) that everyone had to have, then it was the IPhone.

Next it will be Android, and then who knows.... maybe a Windows 9 phone. 

Fact is everyone gets cocky and fat then dies. It’s the business cycle. Ever wonder why Olivetti or brother or Xerox don’t dominate the computer market? (HP same thing) 

 

Answer: fat, cocky, lazy, and dividend giving. 

Apple is done, they have zero innovation inhouse, its all outsourced technology, and its stale now- give it 3 yrs and see where their market share is. Apple's time has passed.  Tim cannot recycle 2 yr old processors and screens and expect to dominate, when cheap chinese phones are coming out blowing away the Iphone with specs.  

 

How many times can mapple get away with lame releases like the last ipad?  

Ohhh ahhh, a new color on the ipad, wow must have....... look they.............- omg!!!!  placed the power button in a new place, 5mm from its old spot, wow apple you guys innovate. Wow a retro teal color.  

 

Totentänzerlied's picture

The insanity of the Apple Fanboys does not adhere to logic or reason. It is a religion.

yogibear's picture

"If this has been in the works for years, as the article suggested"

It was an idea brought forth by the MBA suits and Jobs told them to stick it where the sun don't shine.

Welcome to Dell.

slaughterer's picture

With the iPhone-lite and the self-miniaturization of its product line (no more 17 inch MacBook Pros, ever smaller iPads), AAPL is self-junkifiying itself into Toys'r'Us world, while Samsung is more efficient at beating it to product launches of the high-end (CEC presentation of Samsung smart TV, case in point).  AAPL even has more problems assembling its high-end products as time goes by, and will likely lose more market share in high-end as Google and Samsung attack with more efficient product development systems.  The age of Apple is over.  

TruthInSunshine's picture

Apple plans to implement new strategies to prop up global market share and revenues in the face of stiff competition from the likes of Samsung by fastracking new & exciting products in the developing world with things such as the iBasixFone.

Tijuana Donkey Show's picture

I think that was a M$FT phone. The APPL version of that phone would be Starbucks cups.

Angus McHugepenis's picture

The age of Apple is over

It never started for me. Did I miss the event?

sessinpo's picture

They may as well Samsung themselves before Samsung does. That is the nature of markets. Apple got their ass kicked not knowing this going against the PC business. It wouldn't surprise me if Apple also has "commoditized" tablets too.

ball-and-chain's picture

I've got a Samsung Galaxy Note.

It's beautiful.

I feel like James Kirk of the USS Enterprise.

Beam me up, Scotty.

http://www.angrysinner.blogspot.kr/2013/01/tuesday.html

Ying-Yang's picture

Applesauce.... Reggie where art thou?

ar01's picture

I'd love to see the MSFT/AAPL parallel graph again at some point... 

buzzsaw99's picture

love a cheap phone. drop it in the shallows, no biggie.

tickhound's picture

Shows APPLE is willing to be the Coke OR the Pepsi.

TuesdayBen's picture

Or in the washer in the right jeans pocket. Nnnnnnoooooooooooo!!!!!!!!!

bloostar's picture

I go, yugo, Apple go..bye bye. Steve must be scrolling in his i-grave.

NoDebt's picture

Steve Jobs got while the getting was good.  He went out at the top.

Just another gadget maker company watching it's margins erode to their competition without him. 

Steve Ballmer should submit his resume.  He'd be perfect for a post-Jobs Apple.  He's done such an excellent job managing the decline at MS.

pragmatic hobo's picture

to those using smartphones ... what functionality of smartphone, other than sending/receiving voice/text messages, can't you live without?

laomei's picture

Advanced number blocking, VOIP capabilities, better management of contacts, email functionality, GPS with maps that are frequently updating, having a decent camera without having to buy and lug around a camera, full keyboard, etc. etc.  And the ability to upgrade the software and system with tweaks as desired.

 

The company that extends the basics to home phones eventually.. I guess... will make a killing.

Totentänzerlied's picture

He said "can't live without", not "could and did live without for most of your life and got along just fine, thank you".

laomei's picture

You can live without internet, and computers, and cars, and indoor plumbing too.  Doesn't change the fact that a little convenience is rather nice.  GPS with mapping services allow for much better travel experiences as well in unfamiliar areas.  Much less likely to be ripped off.

Catullus's picture

Maps

And my gold/silver price app,

And reading ZH on the crapper.

Tijuana Donkey Show's picture

Right! Reading my Iphone while Ipoo. I try and time the "big push" when I read anything about BennyB, the smell and splashing sound really line up nice with the effect of QE on the economy. I think of TimmahG when I flush, and Obama when I wash my hands of everything.  

inevitablecollapse's picture

i have the entire rockies and east to mississippi in 1:48,000 topo maps and mobile access to ZH to annoy my liberal friends with my daily iteration of 'articles from the crapper', other than that, yeah it's not good for much.  of course, i bought mine before i became semi-enlightened and old habits are hard to break.  plus, i travel a lot so it's nice to see the old lady and little one on facetime...

SilverFish's picture

Porn, on the go.

 

Usually while driving.

Tijuana Donkey Show's picture

Rub out a solution on the go? Can an Obamaphone do that?

SilverFish's picture

ObamaFone can barely make a phone call.

 

 

Really, its just a cat turd with glitter sprinkled on it.

Angus McHugepenis's picture

I hate cats. Can I get a dog phone that barks when it rings?

Angus McHugepenis's picture

If I was an APPL customer for several years, I'd be pissed about spending gobs of money for their yearly upgrades only to have them come out with a cheaper version that will do pretty much the same thing as the high end product.

I've been using cheap prepaid throw-away phones for about 10 years. They do almost everything I need at a fraction of the cost compared to signing up for a 3 year plan, etc. The only registration required is to get a new phone number chip set up via customer service. No name, address, or other personal info required. Or simply put your old SIM chip into the new phone and use the same phone number.

Tijuana Donkey Show's picture

They know you have that phone from GPS and voiceprint. In a tiny bit of their defense, APPL does release the updates to the older devices, and mine has been quite sturdy in a case. M$FT, HP, and Dell were fucking people on devices for years, APPL will at least repair them. Try and get any other phone repaired, and tell me how it goes. The yearly updates are for Wall$T, and the hedge hotel. 

Totentänzerlied's picture

No you wouldn't, you'd revel in the pseudojustification for sending Lord Jobs, God of the Universe even more of your money. Like paying church tithes or taxes, there's always a rationalization if you're self-righteous enough and have invested enough of your identity in this or that idiotic brand.

analyzer_66's picture

i dont use any apple products, but i do have a google smart phone, I own a small business and I send invoices to clients and collect payments when I am away from my desk/office, stuff that i can do quicker from the phone instead of breaking out the laptop and hoping there is wi-fi where I am, the phone gets signal all over and it is not an AT&T plan nor a Verizon Plan phone, I have had it with those two as well.  I can also stream you tube vids in the car and listen to them on my car stereo with the aux cable.  I can check tide info when I am heading out for some fishing.

if you dont like smart phones, then dont get one

if you dont like whats on this channel of TV, change to another

there is only freedom in harness Hobo, choose thy harness

analyzer_66's picture

i dont use any apple products, but i do have a google smart phone, I own a small business and I send invoices to clients and collect payments when I am away from my desk/office, stuff that i can do quicker from the phone instead of breaking out the laptop and hoping there is wi-fi where I am, the phone gets signal all over and it is not an AT&T plan nor a Verizon Plan phone, I have had it with those two as well.  I can also stream you tube vids in the car and listen to them on my car stereo with the aux cable.  I can check tide info when I am heading out for some fishing.

if you dont like smart phones, then dont get one

if you dont like whats on this channel of TV, change to another

there is only freedom in harness Hobo, choose thy harness

Rainman's picture

A cheapie will be very popular in the ghettos and trailer parks. The old geezers will love it too. Bullish, I say...the Obamacheck market is wide open. 

unplugged's picture

they've been Motorola'd

Joebloinvestor's picture

They will be traded for votes.