Apple Inc. (NASDAQ:AAPL) is expected to announce a new range of iPhone’s today, at a press event shortly. To assess the impact of the announcement, analysts Stuart Jeffrey and Woo Jin Ho from Nomura Equity Research have listed put few key issues: iPhone 5c price point, Cannibalization and new services. These key issues are discussed in detail, below:
iPhone 5C, the most important announcement
Mid-tier phone from Apple Inc. (NASDAQ:AAPL) coded as iPhone 5C will be priced around $400-$450 similar to the pricing of iPhone 4. Thus, iPhone 5C is not for customers who want a low priced phone. If the upcoming phone is priced in the $300-350 range then it can raise the volume but will hit the gross margin.
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Apple Inc. (NASDAQ:AAPL) needs to cater to the mid-tier in order to increase the sales volume of its iPhones. iPhone 5C, according to the analysts, is an initial step towards the mid-range phones. The phone will have a price tag in the range of $400-$45. It will be the most important announcement in the upcoming event. Price of iPhone 5C is likely to be kept only $50 cheaper than that of iPhone 4 and thus will cater to almost same segment of users.
Apple needs to balance margin and cannibalization
Various reports have been released over the past detailing the specifications of iPhone5C. The reports note that hardware of iPhone 5C will be made of plastic, and it differs significantly from iPhone 5, in terms of the camera and other details. If the price of 5C is kept at $200 below the iPhone 5, then Apple will have to save $108 in cost to keep the gross margin at the same level, which is a tough task. According to analyst, Apple can get some help by removing 8GB but taking price to $300-$350 level will require a cut in the gross margin.
Analysts expect that Apple Inc. (NASDAQ:AAPL) will select a higher price point as it did with iPad mini where the prices were kept high. But Apple could only cater to limited market with subsequent high cannibalization of the larger iPad. According to analysts, if the features of 5S and that of 5C do not differ much then sales of high to mid-range models will shift to well above the 50:50 level as is the case at present.
Apple may come up with ‘compelling’ features for 5S
According to the reports available, 5S is considered as a typical iPhone mid cycle refresh. Some of the details of this phone are:
- It is a replacement to iPhone 5 as iPhone 5 is expected to be halted after iPhone 5S is launched.
- iPhone 5S will likely hit the stores in October due to delay in production.
- iPhone 5S will be powered by a marginally better battery, which will be larger in size and will have a new silicon platform.
- Apple could integrate a fingerprint scanner into the iPhone 5S for authentication.
- In Japan, Apple could roll out iPhone 5S on NTT DoCoMo.
It is expected that Apple will launch some new innovative services like a fingerprint scanner, which is likely to be embedded in the 5S for quick authentication, and another feature could be mobile money.
Analysts expect that there will be no changes in the price, and this will assist the margins because the casing of the device will be easier and cheaper to manufacture (will be same as iPhone5). Users will find 5S as an up gradation for 4S users. It is possible that Apple Inc. (NASDAQ:AAPL) may come out with some of the ‘compelling’ services exclusively for 5S.