Apple Inc. (NASDAQ:AAPL) has, apart from an unusual disclosure by Phil Schiller in a Chinese newspaper, characteristically ignored rumors that it is planning to announce a low cost, low margin smart phone this year in order to grab a segment of the developing market, currently out of reach of its smart phone due to its high price.
Since the news began to circulate, a host of reports have been released studying the possible effects of such a release. A report from Barclays PLC (NYSE:BCS) (LON:BARC) supports the move, and sets a price target of $740 on the firm’s stock, that’s an increase of more than 40% on the company’s current share price.
Analysts who are in favor of the move suggest that it might help Apple Inc. (NASDAQ:AAPL) take in a huge amount of revenue from developing world markets, where the iPhone is seen as a far too expensive product. Samsung, and other mobile phone manufacturers, already offer cheaper models.
The rumors surrounding the iPhone mini are becoming ridiculous. Apple Inc. (NASDAQ:AAPL) will probably not release a new smart phone at under $100 price point, nor is it likely that any such phone will be released in the early months of 2013.
The real question is whether Apple Inc. (NASDAQ:AAPL) needs to release such a device at all. The move seems to go against everything the company has striven for in the last decade, and might undermine its brand image, and the integrity of its business model.
It’s not just the gross margin that Apple Inc. (NASDAQ:AAPL) investors should worry about, it’s the company’s future sales. The company’s brand image is currently almost pristine. It is one of the world’s most recognizable brands and is synonymous with quality. An iPhone Mini could change all of that.
Apple Inc. (NASDAQ:AAPL) could release the best possible $100 smart phone, but it would still pale in comparison to the premium model. Apple, unlike Samsung Electronics Co., Ltd. (LON:BC94), has created a brand identity across its products, if one fails, the rest suffer. If Apple Inc. (NASDAQ:AAPL) is currently planning the release of an iPhone Mini, Cupertino executives will be nervous about the backlash on the firm’s brand.
Apple Inc. (NASDAQ:AAPL) has always priced itself for a premium market. This is the trend across its notebook and desktop computer, its tablet, and its smartphone. Even the company’s iPad mini is priced at a premium level, compared to similar tablets. There are several reasons to aim toward such a market, none of them are served by aiming for the budget market at the same time.
Apple Inc. (NASDAQ:AAPL) relies on an ecosystem model. If the company releases a budget smart phone, none of the purchasers will be able to afford a second Apple product, the central tenant of their business model. The same thing goes for app purchases, and content purchases.
If Apple releases an iPhone mini, it will likely bleed the gains it has made in the consumer electronics market in recent years. It will dilute its brand, and betray its core ecosystem strategy. There is no doubt that such a move would increase revenue in the short term, but the long term trend would be downward.
Apple Inc. (NASDAQ:AAPL) is run by smart people, if they’ve decided to go ahead with the release of a budget smart phone, either they’ve seen these problems and decided the short term gain is worth it, or they have a strategy to avoid these problems. If they don’t show clear signs of being able to do this, the faith instilled in the company’s management will quickly lose the support from the market.
Tim Cook has been saying for the last six months that Apple Inc. (NASDAQ:AAPL) is still innovating and has some impressive products in the pipeline. If the iPhone mini is an idea that has taken the resources of a company like Apple, that innovation could no longer be considered inspired.
The iPhone Mini might kill Apple, unless the firm manages to release it without making it appear to be a discount iPhone. Apple Inc. (NASDAQ:AAPL) is not a company that falls into largely avoidable mistakes very often. It is unlikely that those mistakes will plague the launch of an iPhone Mini, if that is indedd the firm’s new product.
