Gene Munster

Apple Inc. (NASDAQ:AAPL) is going to roll out a lower priced iPhone later this year, according to a new research report by Piper Jaffray analyst, Gene Munster. Munster’s believes that his analysis of global unlocked smartphone prices supports the expectation of a lower priced iPhone later this year. Based on publicly available pricing data, Munster believes that the iPhone 4, the lowest priced iPhone, is 133% more expensive than the average low-end smart phone.

Munster believes the $199-$249 unlocked iPhone that he expects in the September quarter would be priced competitively against the average lowend smartphone price of $238 in the six International markets he analyzed. Further, Munster believes that a lower priced iPhone will be a positive for AAPL shares for two reasons. First, despite its lower margin, it should accelerate gross profit growth given the size of the low-end market (Munster estimates $135B in 2013); second, investors have historically bought into AAPL ahead of major new product releases.
Believe Pricing Analysis Confirms Opportunity In Low End Market

Munster looked at top selling unlocked smartphone pricing in six major International countries to gain insight on how the iPhone competes with Android in high-end, mid-tier, and low-end markets. In the six markets he analyzed(Germany, UK, France, China, Brazil, and India), the iPhone is priced significantly higher; iPhone 5 is 19% more expensive than the average high-end smartphone, iPhone 4S is 48% more than the average mid-tier phone, and the iPhone 4 is 133% more than the average low-end smartphone.

Munster believes thst the last finding demonstrates that the biggest pricing gap for iPhone exists between the cheapest iPhone and the average low-end smartphone. This low end segment is important given his estimate of a $135B market in 2013 that Apple Inc. (NASDAQ:AAPL) is currently not participating in (60% of smartphones, or 540m units at a $250 ASP).

Unsurprisingly Emerging Markets Have Most Competition In Low-End

According to Gene Munster India and China have the broadest array of alternatives at the lowest price points and feature the biggest price gaps. In India, the average low-end unlocked smartphone priced at $140 and the average low-end smartphone in China priced at $138. In those two core markets, the iPhone 4 is priced an average of ~265% higher than the average smartphone. Munster believes that the emerging markets are where Apple needs a lower priced product most and may launch the product specifically in those markets and not in markets like the US.
Recapping Lower Priced Phone Expectations

Munster continues to expect Apple to launch a lower priced iPhone in the September quarter (likely in the month of September), which will primarily be sold in emerging markets like China and India. He expects the device to have a $199 base price. Gene Munster believes that Apple could sell ~27 million total units in a partial year in CY13, ~96 million units in CY14, and ~170 million units in CY15.