There's been a lot of speculation about the Apple Inc. (NASDAQ:AAPL) iPhone 5 successor, which is expected to make its debut this year. But besides the company releasing a pure iPhone 5 follow-up this year — the rumored iPhone 5S, with the "S" standing for security (hint: integrated fingerprint sensor) — one Wall Street analyst now feels very confident the firm will also release a "low-cost" iPhone (iPhone 6) in 2013.
Morgan Stanley analyst Katy Huberty issued a note to clients about it after a meeting with Apple Chief Financial Officer Peter Oppenheimer, Business Insider reported.
"We … see several signs that a lower-priced iPhone makes sense," Huberty said. "1) iPad mini is expanding Apple's customer base with 50% of purchases in China/Brazil representing new customers to the ecosystem. 2) Chinese consumers show a desire to purchase the latest version of iPhone (instead of discounted older generations.) 3) iPhone 4 demand surprised to the upside in the December quarter. Even at a low 40% gross margin and 1/3 cannibalization rate, we see an 'iPhone Mini' as incremental to revenue and gross profit dollars."Enjoying this article? Click here to subscribe for full access. Just $5 a month.
Two years ago this month, Apple CEO Tim Cook (who was then the chief operating officer) told Bernstein Research analyst Toni Sacconaghi that the company was doing "clever things" to attack the prepaid market, Business Insider said. He told her he wanted Apple to be "for everyone," not "just for the rich." Cook also said "price is big factor in the prepaid market," but that the company is not "ceding any market," noting how China is "a classic prepaid market."
These analyst notes align well with recent rumors about Apple having a cheaper iPhone in development. In January, a slew of reports from supply-chain sources and major U.S. news outlets such as Bloomberg Businessweek and the Wall Street Journal took notice of a new iPhone in development that strategically targets lower-income, emerging markets such as China and India.
Why Apple Should Release The Low-Cost iPhone In 2013
Apple’s earnings for the fiscal first quarter ended Dec. 29 — despite breaking all previous quarterly profit records at the company — were insufficient to assuage analysts' and investors' concerns about the future, and its diminishing share price has been a reflection of that. To reverse its sliding share price, Apple needs to prove it can still expand. Releasing a comparatively low-priced iPhone 6 this year might be the key.
“One of our sources claims that Apple’s iPhone prices remain too high for most mainland Chinese customers — the iPhone 5 hardware alone starts at $849 there, versus the iPhone 4 at $500, in a country where the average annual salary is around $3,000 per person,” iLounge editor-in-chief Jeremy Horwitz wrote in a January report. “The source has said that mainland Chinese iPhone 5 sales are already tapering off as a result of the pricing, which is higher than in Hong Kong. A budget iPhone model would help sales in populous but underdeveloped countries to grow.”
Thanks to cheaper, smaller, and more power-efficient chipsets, Apple can afford to build an entry-level to midrange smartphone on top of its current iPhone — either one that's larger, like the Samsung Galaxy S3, or a smaller iPhone Nano — to appeal to consumers who can’t quite afford Apple’s most popular product, including many in China. Furthermore, if Apple’s iPhone 6 was not only cheaper but also smaller, the phone would greatly appeal to Asian consumers who find small devices both chic and easier to hold in their (smaller) hands.
Apple definitely wants to make inroads in China. The company is reportedly trying to strike a deal in 2013 with China Mobile Ltd. (NYSE:CHL), the largest telecommunications carrier in the world with 703 million active subscribers, to build a TD-LTE version of the iPhone to work on the carrier’s high-speed networks. On Jan. 10, Apple CEO Tim Cook stopped by China Mobile headquarters to meet with Xi Guohua, that company’s chairman, to discuss “matters of cooperation.”
Reports of Apple's desire to build multiple iPhone models have been echoed on Wall Street. On Jan. 2, Topeka Capital Markets analyst Brian White said the company will likely release its in more colors and screen sizes, implying that Apple might sell an iPhone that's smaller or larger than the current iPhone 5 or even the previous-generation iPhone 4S or 4 units.
"Although Apple offers a 4-inch screen on the iPhone 5 and a 3.5-inch screen on the iPhone 4S and iPhone 4, the company has never offered multiple screen sizes for a single model," White said. "We believe this is about to change with the next iPhone offering different screen sizes that we believe will allow Apple to better bifurcate the market and expand its reach."
Considering Apple’s urgency to strike a deal with China Mobile, as well as the growing number of rumors pointing to a 2013 release date for an iPhone 6 that would be compatible with the popular carrier, it’s likely we could see Apple release both the iPhone 5S and iPhone 6 this year.
Dave Smith is a reporter for International Business Times, where this article first appeared.