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Apple—To Build Cheaper iPhone?

Apple's iPhone 5

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As the overall smartphone market outgrows Apple’s iPhone, Gene Munster of Piper Jaffray believes that the Cupertino-based company will be pushed to release a lower-priced iPhone.

He noted that the so-called “iPhone for the masses” is an imminent device as the smartphone market grew 45 percent annually during the third quarter of 2012. In relation to this, Munster estimates that iPhone’s sales for the holiday quarter will call for about 23 percent increase year over year.

We believe the delta between smartphone market growth and iPhone growth will push Apple to release a lower priced device despite comments to the contrary. Looking back historically, Apple always priced Macs as the higher end of the market and ultimately the iPad, and now the iPad Mini, became the “Mac for the masses”.

iPhone for the Masses—A Necessity for Apple

In relation to this, Munster believes that Apple “needs” to develop an affordable iPhone for the masses. The purported handset will compete against inexpensive Android smartphones that are finding success in the market.

For Apple to do this, the analyst said that Apple could reduce the price of their existing model. This could also pose as a more aggressive continuation of the iPhone maker’s current strategy. Apple could also make small changes, like iPhone without Retina Display, as well as moderate components sold for around $200 without contract.

Expanding Apple’s iPhone Lineup

Munster’s speculations mirror Ben Reitzes’ sentiment. Earlier this month, the Barclays Capital analyst said that he believes that Apple will expand its iPhone lineup with an entry-level model.

He noted that aside from the top six smartphone makers are a number of low-end handset makers. Many of them are from China, which accounts to 28 percent of the total industry.

In relation to this, Reitzes expects that low-cost handsets will have an increase in sales by 70 percent next year. This growth will be largely driven by China, where customers want to purchase an affordable phone without contract subsidy.

On the other hand, Apple has been selling their two previous iPhone models at lower price points together with their iPhone 5. The 8 GB iPhone 4 is available for free with a two-year service contract, while an unlocked iPhone 4 is sold for $450.

 

Expectations for a low-priced and contract-free iPhone have lingered for years. Meanwhile, Apple has gradually expanded its lineup by offering legacy models at lower prices. But industry pundits are still not satisfied with a $450 unsubsidized iPhone.

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