A Low Cost iPhone Could Cut Apple Profits

Michelle Maisto Lead

A low cost iPhone could do Apple more harm than good over the next year, warns Michelle Maisto

Today, Apple will show its latest offerings, nearly a year to the day after introducing the iPhone 5, new iPod Touch and iPod Nano devices, and an update to iTunes.

So many rumors have swirled and details been leaked about Apple’s plans that the biggest surprise of all may be whether Apple can show off anything that the media isn’t already expecting.

Re-asserting the iPhone brand

small_iphone01Another unknown is whether, with its new products, Apple can reinstate the prowess of its brand. In July—ten months after its last major product introduction, Apple announced quarterly profits that were down 22 percent and top-line numbers that were flat. Its revenue per device is also down, as consumers in price-sensitive markets around the world focus on older-model iPhones offered at reduced prices.

“The key challenge for Apple this week is to demonstrate that it can maintain momentum in overall sales of iPhones, and to do so in a way which won’t drive down margins significantly,” Jan Dawson, Ovum chief telecoms analyst, said in a Sept. 9 statement.

It is widely expected that tomorrow’s event will differ from all others by including, for the first time, two new iPhones: the iPhone 5C, a colourful and less-expensive model, and the iPhone 5S. As with the iPhone 4S, the 5S is expected to be an updated but not reimagined model (physically, it will look the same) swinging for the very top of the smartphone market.

The iPhone 5C, it’s said, will be housed in plastic that will come in a variety of colors, and it will not receive the updated processor that will go to the iPhone 5S. The device is said to be an answer to Apple’s adoption rate in China, where the price of new iPhones is too high for many consumers to afford, as well as other prepaid-centric markets where Samsung and others offer a wealth of low-end and midtier devices, but those wanting an Apple device must opt for old models.

Low cost iPhone 5C could hurt Apple profit

In the United States, too, the lower-cost 5C is expected to be of interest—though to a degree that could eat into Apple’s profits, say analysts.

Gartner Research Vice President Carolina Milanesi has said that the risk of a lower-end iPhone is that the “cannibalization on the higher-end devices would be bigger than what we see today with the cheaper iPhone 4.”

UBS analyst Steve Milunovich has told clients that he expects the iPhone 5C to outsell the iPhone 5S through the remainder of 2013, and that through 2014 the 5C is likely to do as much harm as good for Apple, bringing in new users but lowering Apple’s short-term profit. In 2014, he expects Apple to sell approximately 92 million of the low-end devices.

Other rumours we’ll be watching for are the inclusion, on the iPhone 5S, of a fingerprint reader capable of registering multiple users and even multiple fingers, and for Apple’s newest flagship to come in a new shade—a champagne gold that may be meant to tempt those Chinese consumers game to pay for a higher-end model.

Apple will certainly also hold an event in China tomorrow, and it’s expected that, unlike previous years, the new iPhones will go on sale there as quickly as they do in the United States. Also, China Mobile may finally be among the Chinese operators selling the iPhones.

Apple is also expected to be working on a smartwatch and a television set—which may or may not be unveiled at today’s event. And a new iPad and iPad Mini are due—though Ovum’s Dawson expects those to have an event of their own.

Could Apple’s decision to hold the event at its Cupertino campus, instead of at San Francisco’s Moscone West conference center, as in past years, offer a clue?

An event on Apple’s home turf certainly offers “more control over everything, and Apple is about nothing if not control,” Roger Kay, principal analyst with Endpoint Technologies, told eWEEK. A smaller event “may also be part of it. There’s not much left that’s secret, it seems,” Kay added. “Who knows?”

What else has been happening? Try our 2013 smartphones quiz!

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Originally published on eWeek.