One of the arguments that has been made when it comes to Apple Inc. (NASDAQ:AAPL) is that the company does not need a low-cost iPhone because it already has a couple of them. The company continues to sell previous versions of the handset at a lower price than its current flagship model. But is this strategy enough? It might not be.
The smartphone market is shifting toward low-end, less expensive handsets, so Apple just might have to change its strategy. Well-known tech guru John Gruber posted a blog on Daring Fireball explaining why he thinks Apple has to change his strategy this year and also what he expects to see if it does.
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Apple could ditch iPhone 4, 4S
Gruber expects that Apple Inc. (NASDAQ:AAPL) will stop producing the iPhone 4 and the iPhone 4S if it releases a less expensive iPhone 5C model this year. He said that would still leave three different pricing tiers, with the iPhone 5S being the high-end, flagship model, the current iPhone 5 being the mid-range model and the iPhone 5C being the low-end plastic model.
He said this just makes sense because all of Apple’s iPhones would have 16:9 aspect ratio displays and Lightning adapter connectors.
Apple needs a non-subsidized model
Gruber believes that Apple Inc. (NASDAQ:AAPL) should push the low end of its iPhone line up even lower than it goes right now. He notes that the company does sell its low end models for free with a contract, but it doesn’t have any models which do well in markets that don’t offer subsidized. He expects the iPhone 5C to be sold just as the older iPhone models are right now—free with a contract in the U.S. However, he wants to see it sold at a lower unsubsidized price in markets where subsidies are not common practice. He thinks the iPhone 4 is too expensive in non-subsidized markets right now.
In Gruber’s view, Apple Inc. (NASDAQ:AAPL) should be able to sell a low-cost iPhone 5C for as low as $399 or possibly even $349 without a subsidy. He used the iPod Touch pricing and model to come up with this possible price.
Will the iPhone 5C cannibalize the 5S?
He also considers whether Apple Inc. (NASDAQ:AAPL) should be concerned that the low cost iPhone will cannibalize the flagship model. He says if the company does this correctly, it won’t because the flagship model should have enough hardware upgrades that set it apart from the 5C model. His big concern though was that Apple Inc. (NASDAQ:AAPL) might decide to cripple the software on the low-cost model to set it apart. Analyst Gene Munster suspects that the 5C might not have Siri, but Gruber sees this as being “a sign that perhaps we should start being worried about post-Jobs Apple.”