Monday, January 28, 2013

Mobile: Maintaining Margins, Demands, China Are Reasons Why You Should Not Expect A Cheap iPhone

It’s not for us to be talking about Apple’s stock prices here and its value as a company in fiscal terms. However, what’s going on in the stock market could lead to certain mobile expectations that I would like to dispel now. Here is one that I want to dispel now. There will not be a cheap iPhone coming out any time soon. There. You have it. No cheap iPhones that cost $99 or $199 without contract. Why do I believe this? In order to do that, we do have to talk about Apple’s earnings and profit margins a bit in order to do that. See, one of the reasons Apple’s stock is getting killed is the perception that growth is slowing. Sure, it’ll happen eventually but growth is still there if you don’t look at the last financial quarter as a whole but on a week-by-week basis. And Apple is killing it by growing more than 25%. However, what some investors are concerned about is the drop in profit margins from a low forties to high thirties. This is largely due to the fact that Apple introduced a lower margin iPad mini as well as refreshed just about every product it sells for the last Holidays quarter. There are cries for Tim Cook’s head despite the fact that even with lower margins, Apple made more money than ever before. There are also cries that Apple has to release a cheap iPhone to compete in the emerging market. What these idiots don’t realize is that by releasing cheaper iPhones, it would put a squeeze further the valued high profit margins that Apple is appreciated for and lower the average selling price of the iPhone. There are two classes of pundits here who are trying to pull Apple in two directions. One is the tech pundits who wants Apple to increase iPhone market share with a cheap iPhone. On the other side are investors who wants to maintain high profit margins. You can’t expect Apple to do both. Having said that, China was the highlight of Apple’s last financial quarter. Tim Cook said China will eclipse the US market as the largest market for Apple. That means a couple of things. Apple is growing and will continue to grow by selling even just its current lineup. And demand for Apple’s iOS devices and Macs have not reach any point the point where those in China who can afford Apple’s higher price gears are being met. Apple is still looking to open up more stores and places where its products can be bought locally. On top of that, Apple still isn’t selling iPhones and iPads on the biggest mobile network in the world: China Mobile with its 600 million subscribers. You can bet there a few tens of millions of subscribers who can afford iPhones and iPads haven’t jumped ship to other networks will be eager once Apple’s products are available on China Mobile’s network. On top of that, Apple just introduced a payment plan that allows users to buy an iPhone and pay for it over time. Seriously, folks. This is huge and not enough bloggers are picking up on this. What Apple’s doing here isn’t different from most Americans buying cars on installment plans. By doing this, Apple has instantly made its products much more affordable to hundreds of millions of Chinese who do have not the ability to buy an iOS device outright on day one. So, demand in China for Apple products are still at an all time high. Installment plans have made the iPhone available to millions more. Apple is still opening up stores. Anything else to dispel the need for Apple to produce a cheap iPhone? There’s also another market where Apple is just starting to turn its laser focus on: India. Apple may ship a cheap iPhone someday. I’m not ruling it out. It’s not going to happen until iOS devices has so saturated the market that Apple has no where to go but to try to steal its competitors’ lower-end market lunch money. Note: Apple’s last quarter was “bad” for another reason. It could not make enough to meet demands.

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