When Tim Cook was chief operating officer at Apple, he told analyst Toni Sacconaghi that he wanted Apple to be for “everyone,” not “just for the rich.” I don’t know if he was hinting at a cheaper iPhone, but odds are that Apple could be planning such a device.
A new study from Informa Telecoms & Media (www.informatandm.com) predicts that the smartphone market will begin to diverge and sales will become dominated by two poles — the low-end devices (priced below US$150) and the high-end devices (priced above $250). The expensive smartphones will find their market share shrinking from 85% of total smartphones sold in 2011 to 33% in 2017, according to the research group. In contrast, the low-end smartphones will gain enormous amount of market share over the years to account for just over half (52%) of the smartphones sold in 2017.
Informa says that the smartphone market is undergoing dramatic changes whereby demand will be increasingly polarized between expensive and heavily-subsidized handsets on the one hand and affordable devices targeting the emerging markets and skeptical users in the developed world on the other hand. As a result, price erosion is looming as competition becomes more intense.
The average smartphone price will drop from $188 in 2011 to $152 in 2017 as a result of it balancing the huge demand for entry-level smartphones in emerging markets and the demand for “super-smartphones” in developed markets, according to the research group. The devices’ average gross margin is expected to remain flat –in the range of 20 -25%. This is because vendors will increasingly be under pressure to absorb the cost of innovation while keeping up with price competition.
To remain profitable, a number of vendors will have to continue to reduce their operational costs and some will struggle to maintain profitability, according to Malik Saadi, principal analyst at Informa Telecoms & Media. These changes will push some established manufacturers to reposition themselves in the new environment and come out with more effective handset-pricing strategies, he addsd. Only a few manufacturers will be able to operate right across the market, though I expect Apple will be one of them.
Recently, Jefferies analyst Peter Misek told clients that “there is a good chance” Apple introduces a “low-cost iPhone” in June of 2013. This phone will be targeted at pre-paid and emerging markets, especially in Asia, he adds. I don’t know if we’ll see a one at that time, but I do think one is coming within the next 12-18 months.