A working class Apple iPhone would disrupt Android, RIM, Nokia

A working class Apple iPhone would disrupt Android, RIM, Nokia

Summary: Apple may be plotting a low-cost iPhone---most likely the 3GS---in a move to tackle emerging markets, prepaid plans and midmarket customers. This working class iPhone would disrupt Android, RIM and Nokia.

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Apple may be plotting a low-cost iPhone---most likely the 3GS---in a move to tackle emerging markets, prepaid plans and midmarket customers. If this working class iPhone hits the market it will be disruptive to Android as well as Research in Motion, which is living off its low-cost Curve.

Jefferies analyst Peter Misek works through the math and concludes that Apple can hold profit margins as it increasingly tiers it's iPhones. At Apple's developer powwow next week, Apple is expected to highlight the iPhone 4S update. An iPhone 5 will come in mid-2012. However, the most disruptive move would be the iPhone for the prepaid masses. Note that prepaid is the only part of the wireless market that's poised for growth and Android devices and RIM's BlackBerry Curve occupy a lot of shelf space.

Misek makes the case for a low-cost iPhone in simple terms:

We believe AAPL could enter the smartphone mid-market with a $300 iPhone with margins around the current corporate average. Our checks increasingly point to a launch within the next 6-18 months. We believe that this will increase Apple's total addressable market by an additional 500 million phones per year.

Misek's assumptions revolve around a $300 price tag unsubsidized for this low-cost iPhone with $180 in cost of goods sold. That spread equates to $1 earnings per share for every 10 million phones sold. For reference the iPhone 4 on Verizon Wireless has a retail price of $649.

In many respects, we've already seen what a cheap iPhone can do. When Verizon Wireless got the iPhone 4, AT&T was able to still keep units humming with the iPhone 3GS at $49.99. That low-cost iPhone allowed AT&T to take Verizon's best punch well.

Misek noted that Apple can convince manufacturers to shave costs for the iPhone 3GS and make it up on volume. Add it up and the iPhone 3GS can still hang with prepaid phones even if the device can't plug into Apple's upcoming cloud services.

Rest assured that a working class iPhone could be a huge hit with some significant fallout. To wit:

  • Android phones are increasingly going down market. Nokia CEO Stephen Elop noted Android's pricing was killing its margins.
  • Nokia is already having trouble moving feature phones ahead of that Windows Phone 7 device launch. How will Nokia fare with Apple and Android squeezing margins?
  • Research in Motion has largely lived off Curve volume---especially in emerging markets. Apple will be a big headache if it moves down market.

Topics: Mobility, Apple, Hardware, iPhone, Nokia, BlackBerry, Smartphones

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153 comments
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  • RE: A working class Apple iPhone would disrupt Android, RIM, Nokia

    Steve Jobs has repeatedly stated that he does not want to have anything but a universal user experience for the iPhone.

    Moving the 3GS into a prepaid device would create the fragmentation that he's mocked Google over for the last few years.
    lajeep
    • RE: A working class Apple iPhone would disrupt Android, RIM, Nokia

      @lajeep wth are you talking about? fragmentation is not caused by price point, it's caused by hardware/software configurations...
      Custom Colonel
      • RE: A working class Apple iPhone would disrupt Android, RIM, Nokia

        @Custom Colonel Right. As long as it's still able to run iOS, and they make current iOS versions run on phones that are still being sold, you will not have the same fragmentation you are seeing with other devices.
        gtvr
      • RE: A working class Apple iPhone would disrupt Android, RIM, Nokia

        @Custom Colonel The 3gs has worse hardware than the iPhone 4 and the inevitable 5. Continuing to sell it will create the same sort of fragmentation.
        snoop0x7b
      • RE: A working class Apple iPhone would disrupt Android, RIM, Nokia

        @snoop0x7b
        Um, no it won't. If they all run the OS version needed to run the apps people want, there is no fragmentation. Period. Your argument is baseless. Per Se.
        My Macbook Pro has crappier hardware than a new i7. It can still run everything the newer machines can. There in no fragmentation.
        My HP DV9000 can still run Windows programs just fine. No fragmentation.
        Do you even know what the term means?!?
        DeusXMachina
      • RE: A working class Apple iPhone would disrupt Android, RIM, Nokia

        @Custom Colonel
        There is already fragmentation of iOS between original iPhone (can only run 3.1.3) and up through 3G (no macro camera) and 3GS (cannot facetime like iPhone 4). Each version creates fragmentation of some sort, larger or smaller as the case may be. All iOS versions are not equal...
        kcmaclaren
      • RE: A working class Apple iPhone would disrupt Android, RIM, Nokia

        @Custom Colonel

        Exactly.. Thus hardware components that don't exist in the 3GS that now do in 4 and most likely in iPhone5 WILL cause fragmentation in the sense that software designed to take advantage of that new hardware component will not be available for 3GS. If you disagree I suppose you mean that all programmers for iOS will write for the lowest common denominator (3GS) and not take advantage of new hardware (e.g. gyroscope and probably the NFC expected in iPhone5)
        Xennex1170
    • RE: A working class Apple iPhone would disrupt Android, RIM, Nokia

      @lajeep
      Iphone 4 will be prepaid... awesome phone I would buy 2 or 3 just to have... iphone 5 will cost 199 etc. Both will continue to run same iOS.... I don't see fragmentation here

      Good luck getting apps to work with different android devices
      Hasam1991
      • RE: A working class Apple iPhone would disrupt Android, RIM, Nokia

        @Hasam1991 Just to have? So the prospect of owning something like that makes you happy? Give me a break dude... You've got your nose burried even further into Jobs' buttocks than I figured.
        snoop0x7b
      • RE: A working class Apple iPhone would disrupt Android, RIM, Nokia

        @Hasam1991 What are you talking about? Apps work fine on Android devices. You're making up stories now.
        radleym
      • RE: A working class Apple iPhone would disrupt Android, RIM, Nokia

        @Hasam1991: "Good luck getting apps to work with different android devices".

        Please explain. I have a Desire HD (2.2 now 2.3) and I had an experia (2.1). I have not experienced any major app issues. Yes with experia the apps won't install on the SD Card but I am yet to find any app that worked on 2.1 and did not work on 2.2. In fact there is this neat little app called Appwizard which upgrades my apps when I change phones or OSes. So for the life of me please explain what exactly you mean by the above statement. If you are saying that something that works on 2.3 does not work on 2.1 then I am sure there are iPhone apps that are not backwards compatible. And if you are saying that I am not very mobile aware, then I would want you to know I develop learning programs for and on mobile devices.
        Lord_of_the_Singhs
      • RE: A working class Apple iPhone would disrupt Android, RIM, Nokia

        @radleym
        Yeah, no they don't. The one making up stories is you. Try running Goggle Marketplace on your Android 1.5 device, How's that going for you? Try running many 2.2 programs on your 2.0 device. GLWT.
        DeusXMachina
      • RE: A working class Apple iPhone would disrupt Android, RIM, Nokia

        @Hasam1991 I have zero problems with my motorola droid outside of programs that don't cross from cdma to sim and vice versa. (sorry but that would affect the iPhone too if it were capable of letting you get to that level of settings - not for USE, but for CUSTOM uses. Apple doesn't understand that terminology.)
        blueskip
      • RE: A working class Apple iPhone would disrupt Android, RIM, Nokia

        @blueskip
        " I have zero problems with my motorola droid outside of programs that don't cross from cdma to sim and vice versa. (sorry but that would affect the iPhone too if it were capable of letting you get to that level of settings - not for USE, but for CUSTOM uses. Apple doesn't understand that terminology.)"

        Apparently neither do you, particularly CDMA and SIM.
        DeusXMachina
    • RE: A working class Apple iPhone would disrupt Android, RIM, Nokia

      @lajeep Not only would this NOT cause fragmentation, but it lets Apple move back towards its original idea of selling phones with no carrier lock-in (including the high end market). A $800 iPhone5 will make more sense as part of a continuum that includes, say, a $200 iPhone 3GS.<br><br>Tim Cook has explicitly stated that Apple wants to pitch its products at more affordable prices as this becomes possible (just as the iPod now sells for under $50).
      podperson
      • RE: A working class Apple iPhone would disrupt Android, RIM, Nokia

        @podperson What about the ipod touch, whose prices went up accross the board last version?
        radleym
      • RE: A working class Apple iPhone would disrupt Android, RIM, Nokia

        @radleym

        Um, reality check. They increased price because the hardware specs greatly increased. Among other things
        DeusXMachina
    • RE: A working class Apple iPhone would disrupt Android, RIM, Nokia

      @lajeep: Steve Jobs has repeatedly stated lots of things that Apple ends up doing anyway.
      Marco Zamora
    • RE: A working class Apple iPhone would disrupt Android, RIM, Nokia

      @lajeep: I run an iPhone 3GS on Straight Talk wireless. I had to jump through so many hoops - buy a $190 phone just for the SIM card, then a secondhand iPhone. Following that was a massive amount of firmware shenanigans. If I could have just bought a $300 iPhone that would work with my prepaid plan, I'd have done it in a heartbeat. The market is there... lots of people would like the iPhone that just cannot stomach the $110/mo recurring charges. I pay $45/mo plus tax.
      spctrbytz
    • RE: A working class Apple iPhone would disrupt Android, RIM, Nokia

      @lajeep: Good point. In order to make iOS4 run on slower hardware they'll have to change the user experience.

      iOS4 doesn't run too well on the 3GS remember guys.
      bradavon