Apple Inc. (AAPL) Low Priced iPhone Could Have Margins of 38%: CS

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Apple Inc. (AAPL) Low Priced iPhone Could Have Margins of 38%: CS

Apple Inc. (NASDAQ:AAPL) to introduce an updated iPhone 5? That has been the constant speculation of many analysts. Another expectation of many analysts is a launch by Apple Inc. (NASDAQ:AAPL) of a low priced iPhone. Two firms are out with new reports on the topic.

Canaccord Genuity believes that Apple is working on new iPhone products potentially for both the low-end and high-end markets, based on their analysis of near-term demand trends for component suppliers into the iPhone and post meetings at MWC, Apple is likely launch a refreshed iPhone 5 around August or during Q4/F2013. IPhone 5S is expected to come with improved hardware and potentially a larger screen , however, Apple intends to focus on unique software and services to differentiate the iPhone 5S according to Canaccord Genuity.

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Credit Suisse (CS) channel checks in conjunction with the CS Asian team point to Apple not only refreshing the iPhone 5 mid-year but also a specifically targeted low-end iPhone. CS believes that in aggregate this a positive as it can sustain top and bottom line growth (providing upside to their FY13/14 EPS of $44.92/$54.03), deal with the competitive ecosystem and volume threat from Android/Samsung and continue to drive growth in Apple’s installed base.

How much money could Apple make from a cheap iPhone? Credit Suisse believes that Apple can make a lot of money. Based upon a teardown analysis, lower priced phones could have margins lower than the current iPhone but in line with corporate gross margins at 38 percent. At $329 retail ASP, CS believes a low end iPhone (3G device, 8GB of memory and same form factor as the iPhone 5) would be competitive versus rival products.

Assuming Apple introduces a $329 iPhone in 2014 and starts to gain share in these lower price bands, CS believes it could capture 40% share in the $300-$400 market. In turn, this can add incremental revenues of $16bn/$21bn in 2014/2015 and EPS of $3.13/$5.05 even allowing for cannibalization of the existing iPhone,

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