Apple Inc. (AAPL)’s Answer To High-End Smartphone Saturation

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One of the greatest concerns for Apple Inc. (NASDAQ:AAPL) right now is saturation at the high end of the smartphone market. Investors are especially worried about it heading into the upcoming earnings report since it has had such a big effect on sales of Samsung’s Galaxy S4—the iPhone’s biggest competitor.

Apple Inc. (AAPL)'s Answer To High-End Smartphone Saturation

Of course Apple Inc. (NASDAQ:AAPL)’s management has inferred that some major product is right around the corner, but there’s no way of knowing when it will come out or even what it will be. As a result, Trefis analysts are going to be looking at gross margins and guidance for the next quarter when Apple releases its results on Tuesday.

iPhone is almost 50 percent of Apple’s value

In a research note issued this week, the analysts say that 48.1 percent of Apple Inc. (NASDAQ:AAPL)’s value can be attributed to the iPhone. With so much riding on the device, the company has to find a way to keep sales high. Demand for the iPhone 5 will be an especially important indicator in the wake of Samsung’s release of the Galaxy S4.

It’s speculated by a number of analysts that demand in the most recently completed quarter has been fueled by deep discounts on the iPhone, so Trefis analysts will be watching average selling prices closely. Average selling prices will also provide an indication of whether users are opting for older iPhone models because of the lower price tag. There haven’t been many features to distinguish older models from the new, and in fact Apple Inc. (NASDAQ:AAPL)’s average selling prices fell about 3.5 percent in the March quarter.

Apple must tap the low-end smartphone market

Of course in order to increase sales, Apple Inc. (NASDAQ:AAPL) must have a device that’s geared toward the low end of the smartphone market. Emerging markets virtually demand such a device. China in particular is important because it is now ahead of the U.S. in terms of smartphone market size. Currently Apple has a deal with China Unicom and China Telecom, but it still lacks a deal with China Mobile, the carrier which holds two-thirds of the Chinese mobile phone market.

Trefis analysts say Apple Inc. (NASDAQ:AAPL) must find a way to create a low cost iPhone that’s similar to what it has done with the iPad Mini. In short, it needs a device that doesn’t compromise features, build quality or margins much, but that will be able to lower the subsidy costs associated with supporting the iPhone.

Such a device might also help Apple Inc. (NASDAQ:AAPL) get back into the Russian smartphone market, which is also growing. At least three major carriers in the country have dropped Apple Inc. (NASDAQ:AAPL) because of the high subsidies.

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