Apple Inc. (NASDAQ:AAPL) is set to release its earnings report for the quarter ending June 30, 2013 next Monday and analysts have begun to speculate about what the major themes for the last quarter were and what they are likely to be for the coming quarter. One factor that continues to pop up again and again, like every quarter before this one, is the hope a budget iPhone will bring.
One analyst, William V. Power of Baird Research, has the right idea about the phantom iPhone. It’s not a positive move for the company, and there’s enough negatives in the move to suggest that the company will not pursue that line; not if they’re the Apple Inc. (NASDAQ:AAPL) everybody knows and loves.
Cannibalism of Apple products
The iPad Mini is a great product for consumers. It’s small and light, it works brilliantly and it fits in almost any bag. The iPad Mini is a not a great product for Apple Inc. (NASDAQ:AAPL). It all comes down to cannibalization. iPad Mini sales are not taking Nexus 7 sales, they’re taking iPad sales.
The same thing is likely to happen with the budget iPhone, and the situation may be even worse for Apple Inc. (NASDAQ:AAPL). If the margins on a budget iPhone are as small as many expect them to be, Apple Inc. (NASDAQ:AAPL) cannot afford to see it cannibalizing phone sales. It is more than likely that it will; however.
Apple Inc. (NASDAQ:AAPL) will have to supply a high level of quality to its customers on a budget iPhone. Apple Inc. (NASDAQ:AAPL) lives and dies by the word of mouth of its users. Samsung doesn’t worry about that for its budget Android models. If Apple Inc. (NASDAQ:AAPL) fail to deliver a quality experience their brand will be tarnished. If they deliver a truly good experience on a budget why would people upgrade?
Apple Inc. (NASDAQ:AAPL) has to hit a spot of perfection with the quality of its budget iPhone that’s far too exact. The payoff for hitting that point is not very big, and if Apple Inc. (NASDAQ:AAPL) misses it could be disastrous for its gross margins.
Apple Inc. (NASDAQ:AAPL) might launch a new budget iPhone in the coming months, but if they do it’s not likely to be greeted with open arms by the market. Apple cannot afford to sell its brand at this juncture.