How could Apple make a cheap iPhone mini?

How could Apple make a cheap iPhone mini?

Summary: An analyst suggests that Apple needs a cheaper iPhone to break into China. But how much cheaper could Apple make an iPhone mini? Let's take a look at a few options open to Apple.

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TOPICS: iOS, Apple, iPhone, iPad
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Rumors that Apple is working on a cheaper version of the iPhone — dubbed the iPhone mini — got a bit of a boost last week when Morgan Stanley analyst Katy Huberty commented how a lower-priced iPhone made sense.

At the core of Huberty's argument is the fact that Apple wants to expand into China, and Chinese consumers want access to the latest version of the iPhone at a lower price, rather than discounted older generation hardware. Huberty believes that an iPhone mini would help Apple gain a stronger foothold in China.

While an iPhone mini would have lower gross margins, and certainly cannibalize iPhone sales to a certain, albeit unknown, degree, it would boost the company's revenues and profits.

But how much cheaper could Apple make an iPhone mini? Let's take a look at a few options open to Apple.

Cut profit margin on existing hardware

The iPhone commands a huge profit margin, estimated to be anywhere between 35 and 50 percent. I find it unlikely that Apple sell the iPhone cheaper in China than anywhere else in the world.

Release an iPhone mini based built using last-generation technology

While Huberty said that Chinese consumers want the latest version of the iPhone at a lower price, rather than discounted older generation hardware, repackaged older tech might fit the bill. After all, Apple doesn't focus that much on hardware spec, so old-tech packaged in a new shell could pass for new tech.

A new, cheaper iPhone 5

Another possibility would be to for Apple to come up with a cheaper iPhone 5. An IHS teardown of the handset from September 2012 suggested that a 16GB iPhone 5 with a price tag of $649 cost Apple $207 to make.

(Image: IHS)

That was a few months ago, so chances are the iPhone 5 now costs Apple less to make, thanks to falling component prices.

It's also possible that Apple could shave a few bucks off certain components. Processor, the display and touchscreen assembly, and wireless chipsets could all see few bucks shaved off the price.

Stick cellular capability into the iPod touch

The iPod touch retails for $299 for the 32GB model. This could be an ideal platform from which Apple could build a cheaper iPhone.

So, Apple has options open to it. But no matter what route the company takes in China, if it decides to come out with a cheaper iPhone then it will need to carefully address the issue of cannibalization. A cheaper iPhone will need to be inferior in some way to the full-priced iPhone. Either that, or Apple could limit availability of the iPhone mini to certain territories.

An iPhone mini would certainly be disruptive, but Apple would need to be careful not to disrupt its already profitable business in order to expand, and potentially pull in more money.

Topics: iOS, Apple, iPhone, iPad

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20 comments
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  • Apple should create another "fruit" brand to sell lower end devices

    Apple should introduce a lower value brand and use plastic instead of metal casings as well as lower value components. If Apple wants to be in control of a significant slice of the market and keep Apple as a premium brand with high margins there is no alternative in the long run.
    DSC001
    • Yeah. How about "Lemon"?

      I guess Adrian didn't hear Cook reiterate what Jobs said: "We don't make junk."
      Userama
      • Dont overkill

        If your watch is not gold plated, is it junk ?

        If you don't eat your food using gold-plated or genuine silverware, are you eating junk ?
        Amit7777
        • Gold plated?

          What is wrong with solid gold?
          D.T.Long
    • the mechanicals are only $33.....

      ....what can you save by going to plastic? The Apple sore in HK is sill selling MANY iP4s units for the market across the border.
      rpasea
    • Fruity Idea

      So you feel Apple should form a subdivision to make lower quality knockoffs of itself? Perhaps the name chosen should be Banana, as in second.
      Yacko
  • It may be the first important cook has to make at the helm.

    I think we all know where Jobs would have gone here; a cut down apple product designed to be cheap? Yeah have an android one as well...

    Since taking control, I think it's been pretty clear it's business as usual at apple. Little REALLY new has come out, just tweaks mostly. To be honest this could be the sign that the jobs days really are over. If they did this it could be a sign it's time for many of their users to go somewhere else.

    A large percentage of their users use them for the additional services; Genius Bar, onetoone, SMB partnerships. And they do these things very well. Sure it's expensive, but that's the image and the crux of their business.

    They sell themselves on making a product to do a task as well as it can, not to fit a market hole. They have us believe that's what every other tech company does. I'm sure it's come from apple before that if they make the best devices they can, and look after the users, the rest will take care of itself.

    It's time to see if that's changing. Of course it's just marketing, and I don't need the "privileged" service myself, but I know those that do. If they intend to change to become the same as Sony, Samsung, etc. their shareholders would be happy, but why wouldn't you buy the other companie's thing instead... If you're getting the same thing, why not get it cheaper?
    MarknWill
  • It's going to be pretty hard

    I mean, considering their phones are cut rate as it is...

    A friend of mine did a phone comparison chart based on strengths of different phones and while the iPhone 5 was in the top 3 (thanks to SOC and Camera), it didn't get any higher than #3 overall. Of course, our chart was strictly looking at Verizon's lineup of phones. Funny thing is, if you don't consider the camera near the top of required features, the RAZR MAXX HD was all around the phone to beat.

    Anyway, back to Apple...

    What I mean by cut rate, is that their phones aren't in the #1 or #2 sport for best phones in most features. Yes, their camera is Nice and their GPU is the fastest in a Mobile phone the moment but, their screen lags behind several others, their sound system is gimped by the iPod player built in, their CPU lags significantly behind the Droid DNA and Nexus 4, and they have a battery that practically begs you not to use the phone.
    slickjim
    • So your made-up "comparison" gave the top spot ...

      .... to one that is near the bottom of the reliability according to everybody else ....

      Yeah ... that was very well educated and very well done comparison.
      wackoae
  • And Lower Their Profit Margins And Stock Price Even Further?

    The Ipad Mini was bad enough. Was it a sign of more mediocrity to come?
    ldo17
    • there is more than enough mediocrity already

      for a wannabe-premium brand. low-end mac mini and 21 imac with their 5400 drives in 2012 are performing like ****; low end 13 retina mbp with intel graphics is retarded as well
      nitekatt
  • Adrian is on crack

    Please add following to your cost
    -cost of the infrastructure for iCloud and other related infrastructures
    -cost to develop, test the iOS
    -cost To design new chips
    ...
    namesys03
  • I don't get Apple anymore

    Their OS X is still the best OS but for how long will it be the best? I mean being legally tied to piss poor over-priced hardware that's nothing more than a PC thrown into aluminum and they aren't even the best PC parts anymore. The new iMac is a joke, the iPad mini is a scam, and the phones cost little to nothing to make yet they over-charge for them. It seriously saddens me that I have been pouring my money into Apple these last years. Granted I bought the new Mac Mini, and threw a SSD into it and 32GB of ram. It can hold 2 hard drives so I formatted the one that was in there for extra storage. They haven't updated the Mac pro in ages and are killing it in Europe, I think its time to go back to PC if they keep their "please the masses" BS up. If you want to please the masses you need less control. They have gone corrupt like everything else I suppose.
    Christopher.wortman
  • LOL, iOS, dead.

    When you must separate your OS in such a drastic way, between mobile and desktop, you've lost a war. Microsoft see's that, why is Apple in such denial? Apple is playing the role of Microsoft years ago. Little tolerance for change. The difference, Microsoft adapted. Apple has built up an indignant 'we know better' tower of defense, against change. Instead of learning from what MSFT has endured, they are bound and determined to relive each moment. Sad.
    TechNickle
    • Microsoft adapted?

      Really? Microsoft just spent the past 10 years sliding from the first name in technology to the 3rd rate, also-ran. They completely misinterpreted the market for MP3 players, phones and tablets. Today, they are a distant 5th place in phone sales behind Android, Apple, Symbian and Blackberry. And while Android and iOS are increasing sales sharply, MS has a flatline growth at best. Doesn't look like a strategy for success to me.
      Tigertank
  • The Concentric iPhone

    The iPhone costs are premised on its primary US market, where the carriers pay Apple about $450 per unit out of their own pockets and obviously profits. Carriers are tired of this subsidized model and are slowly replacing it. Wonder why?

    Eventually the user will pay full price in the US, and Apple will put out a lower cost phone, concentric with the iPhone and iOS ecosystem, but with reduced feature and materials spex.

    We certainly owe the carriers a thanks for underwriting the development of the first superb smart phone; remember what cell phones used to be? But why not soak the carriers as long as possible? (Hate your carrier? Buy an iPhone.)

    Apple knows better than anyone when to deploy a lower cost iPhone. But how can it be when the huge majority of phones sold in the US are iPhones? At $450 a crack, it would take a lot of little $200 phones to make up the dif.
    Steve Nagel
  • The question should be WHY should Apple waste their time???

    Apple is selling the #1, #2 and #4 phones in the world. On top of that, they are actually making 80% of the money in the smartphone market.

    So can somebody explain, why should they waste time and resources designing and maintaining a cheap phone, when they are making more money than anybody else COMBINED with the current models?? Why bastardize the brand (with cheap components) when the brand is doing very well on its own??
    wackoae
    • because the mobile market is maturing?

      This notion that Apple can just sit back and mantain their leadership position and margins is exactly the mentality that crushed former market leaders.

      This year alone saw the first years where Apple lost the best selling spot, lost "best of" catagory for devices, drops in customer satisfaction, massive drop in marketshare, an iOS update that people actively avoided, a public apology from the CEO about problems.


      The competition isn't sitting still, so why should Apple?
      Emacho
      • They don't have to build cheap crap to survive

        .... selling the last model at a lower price is enough ... and they are proving it.

        There is ZERO reason why any company that is doing well should bastardize their brand just because a few people don't understand basic economical concepts.
        wackoae
  • iphone mini?

    Isn't the iphone already "mini" compared to other smartphones?
    Jean-Pierre-