J.P. Morgan: The ‘Budget’ iPhone Would Kill Samsung’s U.S. Smartphone Marketshare In 12 Months

budget-iphone-concept

We’ve been talking a lot about the budget iPhone in recent months, mostly in relation to the emerging market (where the vast majority of the remaining smartphone growth is expected to happen in the next five years), but here’s a question: even if Apple, as they are rumored to do, release their first plastic iPhone since the iPhone 3GS, how are they going to price it low enough to actually penetrate third-world countries where the cost of the phone might be equal to someone’s salary for the month? Especially while maintaining Apple’s customary profit margins?

The truth is, it’s almost impossible to imagine Apple being able — or interested! — in doing any such thing. Current rumor pegs the “budget” iPhone as basically an iPhone 5 with a colorful plastic shell. If those rumors are true, that’s not really a budget phone: it’s a mid-range. It has to be if Apple wants to make money off of it.

Slowly but surely, that’s the realization dawning on some people on Wall Street. The “budget” iPhone isn’t going to be budget at all. And Apple’s going to make buttloads off of it.

As John Paczkowski over at All Things D notes, Apple has a history of pricing its budget devices well beyond the consensus on what the device “needs” to be priced at to be competitive. The iPad mini launched at $329, when analysts said it needed to launch at $249 to compete with the likes of the Kindle Fire and Nexus 7. The iPad mini is now the most popular 7-inch tablet in the world. Likewse, the iPod nano launched at $199, when analysts said it needed to cost half that to compete with cheapie MP3 players.

So Apple has a history of pricing its budget devices well above the competition. Likewise, Apple has never really made a low-end device. The Mac mini might be the cheapest Mac around, but it costs twice what an entry-level Windows PC costs. Even the venerable iPod shuffle has a shocking amount of polish put into its industrial design, and costs about twice what other cheapie MP3 players (with twice the memory!) cost.

This is the line of thinking currently being pursued by Gokul Hariharan and Mark Moskowitz over at J.P. Morgan. Apple doesn’t make budget products, because the profit is too low and there are too many compromises, but it does make mid-range products… and Apple could make a lot of money releasing a mid-range iPhone priced low enough to draw-in budget consumers and first-time smartphone buyers.

Currently Samsung dominates this segment ($200-500 price range) with 35+ percent market share. … We believe Apple could take 20-25 percent of this market in the next 12 months (from almost no market share currently), if it prices a lower-priced product at $350-400 levels.”

In other words, if Apple released a mid-range iPhone that cost $200-$500 without subsidies, it would within a year put the hurt on Samsung. Within a couple of years, it might kill the threat of Samsung’s Galaxy range of devices all together.

And if you think about it, doesn’t a plastic color iPhone sound like a mid-range device? Look at the colorful phones we’re seeing hit the market, like Nokia’s Lumia series. These are all mid-range devices. Apple’s building a colorful iPhone that will appeal to a whole new range of consumers, just like the colorful iPod nano did. And as we’ve already seen, that’s a winning strategy.

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  • Adrayven

    Doesn’t apple already do a mid-range? It’s called the iphone 4S?

    I don’t see the difference..

  • aardman

    Doesn’t apple already do a mid-range? It’s called the iphone 4S?

    I don’t see the difference..

    I suppose Apple’s marketing people think there are a boatload of people who will not buy an ‘older model’ iPhone but will buy a current model lower priced (not low price) iPhone.

  • daov2a

    JP Morgan?? The company that had to be bailed out and is still receiving government subsidies and swiped billions for the US government/tax payers? Who’s still listening to such an obviously badly managed corporate entity? JP Morgan is a joke but I guess they are still rolling in the dough so what do I know? Any advice given by such a company should have a disclaimer that JP Morgan’s word cannot be taken as gold anymore.

    In any case, they’re half right. Any bargain iPhone will eat into Samsung’s market share but it won’t kill it; not by a long shot. Samsung has too much brand identity at this point and Apple is losing some.

    I personally think any bargain iPhone will hurt Apple and further diminish their brand as the hip, smart, uber nice and ultra-perfect tech. It is a step backwards for Apple and does nothing to solve their issue with cash strapped iPhone purchasers. Any person who has little to no money for an iPhone can definitely pursue an iPhone 4S. Apple would be better off offering older iPhones, such as the 3GS-4S, on their website at a steep discount or as returned/repaired items. They could then advertise and push this in the Apple stores, Verizon stores, ATT stores and/or Sprint stores or sell the same returned/repaired items in those stores and offer the stores a percentage kickback for the sales. They could also offer a return program for past iPhone owners looking to upgrade and then re-sell those phones. That would be a much more attractive program and require little to no investment in comparison to a new inventory line creation at Foxconn. It is obvious that Ron Johnson who left is sorely needed in such a decision. I guarantee he would have said no to any bargain iPhone.

  • technochick

    People also seem to be forgetting that folks are buying the current phones under these new financing arrangements. So is a ‘budget’ iPhone really needed. Maybe not.

    In fact some candy colored plastic phone might not sell because it looks cheap. And Apple doesn’t do cheap. They have been very public that they don’t design to a price point or simply to chase market share. If they are going to do an iPhone Lite there needs to be more than a lower cost behind it. Like say a scaled use iPhone for giving to young kids or for grandma, folks that don’t need fancy apps etc. it might be a phone that simply makes calls, takes photos, has your address, writes notes and sends messages. It might have No maps, safari, email, App Store etc. it might not even have wifi built in. Or Siri, compass, gyro etc. it would be like the Apple Jitterbug. And because those expensive bits are missing the price naturally comes down.

  • technochick
    Doesn’t apple already do a mid-range? It’s called the iphone 4S?

    I don’t see the difference..

    I suppose Apple’s marketing people think there are a boatload of people who will not buy an ‘older model’ iPhone but will buy a current model lower priced (not low price) iPhone.

    So when the iPhone 5s comes out they will drop the price on the iPhone 5 and rebrand it the iPhone budget?

  • ErinsDad

    JP Morgan – “We’re money managers. We manage your money until it’s all gone”.

    I wouldn’t trust them to correctly predict sunrise. Samsung will be just fine, thank you.

  • extra_medium

    JP Morgan seems to think that people all still want iPhones and the only reason they bought mid- range samsungs instead was the relatively small price difference. That might have been true 4-5 years ago, but Samsung’s recent high-end success seems to refute that. To everyone but apple fans, the shine isn’t the same as it was back then. Android is a viable alternative that many see as superior, not just a “good enough for now” option. IOS 7 might change that but we’ll have to wait and see. That plus, as everyone says, the iPhone 4 is available in that range and it hasn’t killed any market.

  • sirobin171

    The only reason Samsung and Android in general is a large part of the market is price. To all you Samsung heads out there who think the sun now revolves around you’re phones, its all about $ the Android phones are cheaper, and people want to spend less. Thats the bottom line. Its not that Androis is somehow better, or the Samsung hardware is somehow better, because to be quite honest, as an App developer for both, I own both, and use them frequently, Android even close to Ios. Not even close. If Apple decides to sell a mid-range phone, ios will clobber Android, get you’re popcorn out, if this happens its going to get really interesting soon. Samsung has no original idea’s. They copy everything right down to Apple’s little square USB phone charger for the iphone. Now I will concede that I find it hard to believe that Apple will want to eat into its high end iphone business with a mid range phone, but if they can preserve margins at lower build cost and sell more units, than why not?

  • Steven Quan

    I’m not aware of any Apple product that was ever a budget or a mid-range. The iPad Mini was a totally new product designed from the ground up (it’s a first generation). It wasn’t a shrunken down iPad. It was priced at the premium end of the 7-8″ tablet market at $329. Brownlee is calling $329 the mid-range because numerically it’s more expensive than Kindle Fire ($199) and less expensive than the 4th gen iPad ($499) but this is not an accurate comparison as the Mini does not have a retina screen or even the same size screen as more expensive iPads.

    If you people are gonna say the iPad Mini is a mid-range product then the iPhone 3GS is Apple’s budget product. The fact is, iPhone 3GS was the best device Apple could ship at the time of release. The same goes for the iPhone 4 and 4S. The iPhone 4 and 4S are being called mid-range products but at the time they came out they were cutting edge.

    You can go down Apple’s entire product lineup starting from the iPod Touch, iPhone, iMac, iPad, Mac Pro, Apple TV, etc. If you look at the direct competition the prices of all their products are at the top end. None of their products is budget or even mid-range.

  • Steven Quan

    The only reason Samsung and Android in general is a large part of the market is price. To all you Samsung heads out there who think the sun now revolves around you’re phones, its all about $ the Android phones are cheaper, and people want to spend less. Thats the bottom line. Its not that Androis is somehow better, or the Samsung hardware is somehow better, because to be quite honest, as an App developer for both, I own both, and use them frequently, Android even close to Ios. Not even close. If Apple decides to sell a mid-range phone, ios will clobber Android, get you’re popcorn out, if this happens its going to get really interesting soon. Samsung has no original idea’s. They copy everything right down to Apple’s little square USB phone charger for the iphone. Now I will concede that I find it hard to believe that Apple will want to eat into its high end iphone business with a mid range phone, but if they can preserve margins at lower build cost and sell more units, than why not?

    Actually the reason I got my Galaxy S2 because at the time, Apple did not have voice navigation for their maps and Google’s maps and navigation services are the best in the world. Turn by turn navigation is very new for iOS and only came out in the latest iteration. Apple has been playing catch up in this area big time.

    The infatuation with Galaxy S3 is that it’s the first Android smart phone that didn’t suck compared to iPhone. My Galaxy S2 can’t even hold a candle to the 4S in terms of speed and functionality, just this morning it froze up again and I had to reset it, second time in as many days. Samsung has only come on very recently with their top end smart phone success.

    When people realize they can get better apps and support for their smart phones from Apple, many will switch back. I speak from both camps having an iPod Touch and a Galaxy S2. Many apps like Gmail, Google Maps, and Yahoo Weather actually look much better on iOS than they do on Android in my opinion. It’s only the latest update that the Gmail app will auto-sync with the server on my Galaxy S2, whereas it has always done this with my iPod Touch.

    As far as updates go Android has always been terrible. My latest update to Android 4.0 to my Galaxy S2 is in name only. My device doesn’t get any of the newest features available to Android 4 users, whereas I’m confident I’ll get most, if not all the newest features available when iOS 7 rolls out for my iPod Touch and I’m actually very excited about downloading it.

  • Ianthetechman

    I am one of the biggest apple fans i know but i recently went and got the Samsung galaxy note2. And believe me Samsung are doing some great things with there high end phones at the minute, and although i hate to say it they are leaving apple behind on features.

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 girlfriend and two parakeets. You can follow him here on Twitter.

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