Apple Inc. (NASDAQ:AAPL) has a lot of catching up to do if it’s going to make a low-cost iPhone and successfully compete with companies which already offer low-cost smartphone devices. There has been speculation for months that the company will make a less expensive version of its iPhone, and analysts have even come out with predictions on what it would look like. But analysts at Bank of America Merrill Lynch say if Apple is going to do it, then they’ve got some work to do in order to make it a success.
The analysts issued a report to investors this week about the possibility of a low-cost iPhone and why Apple Inc. (NASDAQ:AAPL) should make one. They believe that if the company is going to continue growing, it must make a product which addresses the low-end smartphone market. However they also note that Apple Inc. (NASDAQ:AAPL) is at a bit of a disadvantage versus its competitors when it comes to distributing a low-cost smartphone.
BAML analysts said Apple has a bit of a distribution problem in emerging markets, and they believe that the success of a low-cost iPhone will be “highly dependent on how quickly Apple Inc. (NASDAQ:AAPL) can expand its distribution network in the regions.”
They point out that while iPhone distribution in North America and Latin America is mostly done through mobile carriers or through Apple’s online or retail stores, distribution in China, India, the Middle East and Africa is generally done through distributors. They said Nokia Corporation (ADR) (NYSE:NOK) and Samsung Electronics Co., Ltd. (LON:BC94) both have already built out their distribution networks in these emerging markets. Apple has not yet done that, and it took Samsung years to do it.
BAML analysts said Apple Inc. (NASDAQ:AAPL) has begun to develop relationships with some IT distributors in emerging markets, although they said the company still needs more relationships if it is going to find success in the release of a low-cost iPhone.
If Apple Inc. (NASDAQ:AAPL) does offer a low-cost iPhone, they said it should only be for sale in developing markets because of the high risk of cannibalization in mature markets. They also said that it would likely be priced between $250 and $300, compared to the current average selling price of $600