Apple Inc. (NASDAQ:AAPL), with the new product announcements, seems to have chosen margin preservation over growth, according to analysts Keith Bachman, Jung Pak and Gaurav Gupta from BMO capital. The iPhone maker launched two new models iPhone 5S and iPhone 5C with a price tag of $650 unlocked and $550 unlocked respectively. Price of iPhone 4S is kept at $450 unlocked.
Apple gross margins concerns lowering
According to analysts, iPhone 5 would have been priced at $550 if Apple Inc. (NASDAQ:AAPL) would not have launch iPhone 5C, which indicates that the company is consistent with its price strategies. Gross margin concerns are lowered now as iPhone 5C is expected to bring in good margin expansion.
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Before the September 10th event analysts expected the mid-tier iPhone to be priced at $400 to $450 keeping single point estimate at $450 while iPhone 4S will be the low end of the iPhones.
Those bullish on Apple Inc. (NASDAQ:AAPL) were expecting price point would be around $400 while the sell side was expecting the prices to be below $400. iPhone 5C will expectedly gain a gross margin of near about 40 percent to 45 percent, helping Apple to command a strong gross margin for the fourth quarter. Analysts expect gross margin for iPhones to come around 43 percent in both September and December quarter.
iPhone 5C expected to be more popular
However, Apple Inc. (NASDAQ:AAPL) does not seem to change its TAM following the launch of new products. iPhone 4s can potentially be used to gain market share in emerging market but iPhone 5 models “remains largely an upgrade story,” believe analysts. According to the report, users will mostly switch from iPhone 4S to iPhone 5C due to the color palates. On the other hand, iPhone 5S will appeal to customers due to its fingerprint recognition technology, speedier processor and better camera. iPhone 5S is positioned towards customers with high disposable incomes and demanding tech users. According to analysts, among the two new devices iPhone 5c “will prove to be the more popular device”, and this may be the reason why Apple has set a high price for it.
Apple Inc. (NASDAQ:AAPL) has launched many schemes to increase its sales despite the high price points. It is offering trade in the program that will assist the sales in the United States. Additionally, Apple is offering bundle app for free on new purchases, such as iWork and iPhoto. Also, iOS 7 will be able to drive some customers to new launches despite the fact that iOS7 can be ported to older products.