As a result of the growing competition in the expanding smartphone market, two major players have now resorted to aggressive pricing of their flagship devices in the U.S. market.
AT&T Inc. (NYSE:T) announced that the new Nokia Corporation (NYSE:NOK) Lumia 920, the top-of-the-line Nokia phone, powered by Windows Phone 8 system, will be selling for $100 on a 2 year contract, which is half the price of an Apple Inc. (NASDAQ:AAPL)’s iPhone 5 with the same contract.
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The search engine giant, Google Inc (NASDAQ:GOOG), released the latest version of its flagship model, Nexus 4, last week. The company is offering the device online for $299, contract-free and with no carrier subsidies. With the same terms, AT&T Inc. (NYSE:T) sells the iPhone for $659; even the previous generation iPhone 4 still costs $450, contract and subsidy-free. Google Inc (NASDAQ:GOOG) has also turned to low prices for its other devices; it now sells a tablet computer for $199 and a laptop for $250.
Among all these subsidy games, Apple Inc. (NASDAQ:AAPL), the market leader, sits on a huge pile of cash by selling the devices on hefty margins. The Cupertino based company’s cash reserves are similar to the size of the world’s largest hedge funds.
Apple Inc. (NASDAQ:AAPL)’s rivals have been known for slashing the prices of their devices, which in turn has only impacted their bottom line. Nokia Corporation (NYSE:NOK) had revised the price of Lumia 900 to just $50 in July, but that also failed to create a buzz in the market. A contract-free price for Lumia 920 in the U.S. is still not out, but in Europe the subsidy free prices are comparable to the iPhone5.
The aggressive pricing from the manufactures follows the strategy used by mobile network operators of heavily subsidizing the price of handsets. Analysts believe operators lose hundreds of dollars on each high-end device they sell, hoping to compensate it by locking customers in to monthly contracts.
WSJ’s Anton Troianovski wrote earlier this year about the practices used by carriers “Carriers in the U.S. have been raising monthly rates and charging higher fees when customers upgrade to new phones. In Europe, embattled carriers are taking more aggressive measures: Spain’s two leading wireless companies are refusing to subsidize devices for new customers. In the global wireless market, where device manufacturers such as Apple and Samsung Electronics Co. and software makers like Google Inc. continue to hold considerable sway, carriers still typically pay full price for their phones, then sell them at deep discounts to customers who sign two-year contracts. But the carriers’ latest signs of resistance are drawing applause from investors and analysts. They say the carriers could benefit more from the smartphone boom if they succeed in raising prices for service plans and slowing the rate at which customers buy new phones”.