John Paczkowski

Recent Posts by John Paczkowski

Why Build a Cheaper iPhone? Because It’s Stupid Not To.

Apple needs to finish up development of the low-cost iPhone it has been working on for the past few years, and bring the device to market now. Because to do otherwise is utterly illogical. There’s simply far too much revenue at stake.

That’s the argument put forth by BTIG analyst Walter Piecyk, who says that Apple will debut a low-cost iPhone before the year is over, because it would be stupid not to. Piecyk, like many who follow Apple, sees massive untapped demand for a lower-end version of the company’s flagship smartphone. According to his back-of-the-napkin math, Apple could sell about 36.5 million such iPhones in fiscal 2014. And that could add $11 billion in revenue for the period, even after accounting for some cannibalization of the higher-priced models.

“We believe a product that addresses the more than 70 percent of global wireless subscribers that are unsubsidized pre-paid is necessary in order for Apple to grow its EPS next year,” Piecyk writes. “This is not rocket science and our belief is based on basic logic, not questionable ‘channel checks’ or trips to Asia.”

And that’s perhaps the best argument yet for the low-end iPhone. Why build it? Because at this point it’s stupid not to. The emerging market opportunity in China, India and elsewhere is simply too great. And while peddling legacy iPhones to price-sensitive customers has allowed Apple to tap into this market, it would likely be a lot more successful with a device designed specifically for it. What’s more appealing, paying bargain-basement prices for a two-year old iPhone? Or purchasing an inexpensive version of the latest model? Think of the low-end iPhone like the iPad mini, and the logic of that argument becomes quite clear. The iPad mini has become very popular, very quickly.

Sure, a low-end iPhone might reduce Apple’s profit margins, which it has been loath to sacrifice. It might complicate manufacturing processes as well, as some at the company have worried. But there’s little question that it would spike sales in emerging markets. Note that the iPhone has grown considerably faster in the U.S. than Android, and one reason for this is that the U.S. is one of the few large markets where Apple offers legacy iPhones as a low-end, free-with-contract offering. In other words, given the choice of a free-with-contract iPhone and a free-with-contract Android device, a lot of consumers in the U.S. are opting for the iPhone. As Asymco’s Horace Dediu writes, “One wonders what would happen if such price parity were present globally.”

Great question.

Some will argue that it’s not in Apple’s ethos to build a “cheap” product. That’s certainly true. So expect the low end iPhone to be a device worthy of that ethos, not something that undermines it. Again, think about what the company did with the iPad mini. As CEO Tim Cook said earlier this year, “Our north star is great products. … The only thing we’ll never do is make a crappy product. That’s our religion: We must do something great.”

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Another gadget you don’t really need. Will not work once you get it home. New model out in 4 weeks. Battery life is too short to be of any use.

— From the fact sheet for a fake product entitled Useless Plasticbox 1.2 (an actual empty plastic box) placed in L.A.-area Best Buy stores by an artist called Plastic Jesus