New devices coming soon: A man tries Apple's iPhone at its showroom in Beijing. Photo: Reuters
The handset market is so brutally competitive that Apple, the most successful smartphone maker, is preparing to step up its game this week by offering two new iPhones instead of one.
At an event Tuesday (US time) at its Cupertino, California, headquarters, the company is set to unveil for customers worldwide a new iPhone with a faster processor, along with another model that will be sold at a lower cost.
The release of the less-expensive iPhone comes as the growth of the company’s profits has slowed in response to a saturated handset market in America and parts of Europe. Many people own a smartphone and are not upgrading as often as before.
A lower-cost smartphone could allow Apple to expand into overseas markets - especially China, where the iPhone has been highly desired among many consumers but out of reach because of its price.
“A cheaper model will open up the market significantly for Apple,” said Chetan Sharma, an independent telecom analyst who consults for phone carriers.
Apple declined to comment on the new products. But analysts expect the higher-priced model to be an improvement over the current iPhone, including a faster processor and better camera flash, as well as a fingerprint sensor for security.
The second iPhone is expected to be a cheaper version of the soon-to-be-outdated iPhone 5, coming in a variety of colors, with a plastic case instead of aluminum. Analysts expect the full price of the lower-cost iPhone to be $US300 to $US400, positioning it as a mid-tier product. Apple's iPhone 5 currently retails for $A800 in Australia.
Apple has been enormously successful, with the iPhone driving most of its revenue. In the second quarter, the company took 53 per cent of the profit in the global smartphone market, with Samsung Electronics, which uses Google Android software to run its smartphones, taking the rest, according to a survey by Canaccord Genuity, an investment bank.
But both Apple and Samsung face a common enemy: the tide of manufacturers that produce dirt-cheap Android phones. While they make all the profits, Apple and Samsung have seen their combined share of the worldwide smartphone market drop to 43 per cent in the second quarter from 49 per cent a year earlier. The makers of cheaper phones - including Huawei, Yulong and ZTE of China, and Micromax and Karbonn of India - are raking in sales in emerging markets where high-end smartphones are not popular.
“We’ve had several indications from the handset market that vendors are in real trouble,” said Tero Kuittinen, an analyst for Alekstra, a mobile diagnostics firm. “The biggest threat to all the companies seems to be the low-end Androids.”
In terms of sales, smartphones surpassed traditional flip phones this year. There are a few markets remaining where traditional cellphones are still outselling the smartphone, including India, Brazil and Russia. Data from Qualcomm suggests that Latin America, China and India are adding substantially higher numbers of smartphone subscriptions than North America, Japan, Korea and Europe.
China, with its huge population, is an attractive target for Apple. But Timothy D. Cook, Apple’s chief executive, said recently in a call with investors that the company was puzzled about why sales of its products were struggling in China. Sales there fell 4 per cent in the second quarter compared with the same quarter last year. And Apple’s sales in Hong Kong were down about 20 per cent.
A cheaper iPhone could help it gain traction in China, depending on its cost.
Historically, so it can protect the quality of its products as well as profit margins, Apple has refused to make cheaper products just to get more customers. Therefore, a lower-cost iPhone would likely be positioned as a mid-tier product, similar to the approach Apple took with the iPad Mini. At $A369, the iPad Mini is cheaper than the bigger, $A539 iPad, but not as affordable as the smaller Android tablets offered by Google and Samsung.
Realistically, a lower-cost iPhone will be $US300 to $US400 at full price, Kuittinen, the Alekstra analyst, said, significantly less than the current iPhone, which costs $US650 in the US and $800 in Australia. Overseas, many phone carriers charge full price because they do not subsidise the upfront cost of a smartphone the way carriers do in the United States. And while a lower-cost iPhone would drive up Apple’s revenue, it would probably not be a blockbuster hit in economically disadvantaged markets, Kuittinen said.
“Nobody is saying Apple should have a $US130 iPhone,” he said, “but if they price this iPhone 5C at $US400 or above, it’s just not going to be effective in countries like India, China or even Brazil.”
Still, even if the price is fairly high, a cheaper iPhone should appeal to a subset of people in developing countries who flaunt gadgets as status symbols, like jewelry. People who were on the fence about buying an iPhone might pay a little extra just to be able to show off, Sharma, the telecom analyst, said. “Consumers are willing to shell out money to own a brand,” he said. “I think a $US300 price gives them a chance to own it.”
The New York Times