Unit sales vs profits: why Apple doesn’t need to make a US$99 iPhone

13 Jun 2013

Apple's iPhone 5

Rumours of a low-cost iPhone are rampant, fuelled by statistics declaring Apple’s struggle to keep up with Samsung’s market share. But is the company with more than half of global smartphone profits really about to change its brand philosophy?

Today, Reuters reports sketchy details from four unnamed sources – some said to be working in Apple’s Asian supply chain – that a low-cost, colourful iPhone is in development. These rumours are nothing new and speculation of a cheaper Apple-made smartphone have been circulating for months, but this report has further stoked the rumour mill with claims that Apple is also looking at 4.7-inch and 5.7-inch displays for its next-generation iPhone.

Reuters’ sources claim suppliers have been approached by Apple with plans for larger screens, however, they are not confident of whether or not they will appear in a final product, or when.

The report goes on to claim that Apple will release two new iPhone models over the course of the next year – one of which will be a low-cost model in a variety of five to six colours. What’s most shocking in this revelation is the suggestion that this phone could come with a US$99 price tag.

Even for a low-cost model, this price point is a stretch for Apple. To put things into perspective, the lowest-priced iPod touch available from the Apple Store is priced at US$229, and these devices already offer a pared-down set of iPhone features.

Samsung makes the sales, Apple makes the money

The reasoning behind reports suggesting that Apple has its sights set on the lower tier of the smartphone market is based on the Californian tech giant’s waning market share.

According to Strategy Analytics, 209.5m smartphones were sold in the first quarter of 2013. Of these, Samsung shipped 69.4m, accounting for 33pc of the market. Apple’s shipments in the same period were almost half that, at 37.4m.

However, where Apple wins over Samsung – and all other smartphone-makers – is profit. Strategy Analytics’ measure of global smartphone profit by vendor for the same quarter has Apple on top with 57pc of the share and Samsung in second with 40.8pc.

Low prices or larger screens?

While Samsung’s tack is to flood the market with a wide range of handsets appealing to the broadest spectrum of consumers– see the numerous iterations of its flagship device – Apple’s key concerns have always appeared to lie not in unit sales but profit.

That’s not to say that Apple won’t go about making the iPhone range as varied as the iPod’s, but prices below US$100 would mark a seismic shift in the company’s ethos.

A larger screen on the next-generation iPhone, however, is not such a far cry. Following five generations of 3.5-inch displays, the iPhone 5 took a stretch to a full four inches in September 2012.

Nine months down the line, the latest-generation Apple handset is dwarfed by 2013’s flagship models – the 4.7-inch HTC One, the 5-inch Sony Xperia Z, and the 5-inch Galaxy S4 from Samsung. With this trend in mind, Apple would be advised to go big or go home.

Elaine Burke is the editor of Silicon Republic