Why An iPhone Mini Is Key For Apple Continuing To Grow

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In addition to forecasting that Apple would double existing investor dividends to 6% by borrowing low-interest cash domestically. Morgan Stanley’s Katy Huberty walked away from her recent meeting with another conviction: that a cheaper ‘iPhone mini’ aimed at emerging markets was extremely likely

Writing to clients this morning, Huberty said:

We also see several signs that a lower priced iPhone makes sense: 1) iPad Mini is expanding Apple’s customer base with 50% of purchases in China/Brazil representing new customers to the ecosystem. 2) Chinese consumers show a desire to purchase the latest version of iPhone (instead of discounted older generations). 3) iPhone 4 demand surprised to the upside in the December quarter. Even at a low 40% gross margin and 1/3 cannibalization rate, we see an “iPhone Mini” as incremental to revenue and gross profit dollars.

The emerging market is a big, big opportunity of growth for Apple. There’s a reason why Huberty is emphasinzing China here. China has overtaken the United States as the world’s biggest smartphone market, and the U.S. market has become saturated with smartphones. In China alone, though, there’s almost a billion people without smartphones yet. If Apple can make a device that addresses even a fraction of that market, its market share will explode.

Everyone who can afford a smartphone already has one. The next challenge is to figure out a way to bring a premium smartphone experience to less affluent and third-world customers. Dropping the price of older iPhones and keeping them in circulation has helped, but it’s not enough, as Samsung’s enormous 114% growth in 2012 suggests.

Certainly, getting an iPhone in everyone’s hands is something Tim Cook himself wants. Two years ago, Cook said that he wanted Apple to be “for everyone” and “not just for the rich.” Will the iPhone mini fulfill that promise in 2013? Only time will tell.

  • aardman

    iPhone Mini, iPhone Mini, iPhone Mini. Everyone and his uncle are now chanting iPhone Mini without explaining how this is going to work without eviscerating sales of the more profitable iPhone. A characteristic of devices for which the software is the primary differentiating factor is that the successful release of a low end model kills the high end business. That’s why there is no low end Mac, and no (okay, insignificant) high end Windows machines. (Also why Chrome Pixel is soon for the graveyard.)

    Will Apple gimp it a la IBM PC Jr. (Remember those?) or netbooks? Will enough people buy a gimped iPhone Mini?

    Will the iPhone Mini be exclusive to emerging markets? If it is, will Apple maintain the aspirational status that it enjoys in the 3rd world? Will loss of this status hurt Apple in the long run? Furthermore, how does Apple prevent the rise of an iPhone Mini gray market in the first world?

    Every product that Steve introduced, he first very meticulously defined its use model. Will Apple define a different use model for the iPhone Mini vs. iPhone? (Just like iPad is sold on the premise of a different use model from laptops.) Rolling out a new use model can be very lucrative (iPad) or DOA (those MS youth phones that died so quickly after birth, nobody even remembers their names.)

    So many unanswered questions.

About the author

John BrownleeJohn Brownlee is a Contributing Editor. He has also written for Wired, Playboy, Boing Boing, Popular Mechanics, VentureBeat, and Gizmodo. He lives in Boston with his wife and two parakeets. You can follow him here on Twitter.

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