Apple: Cheaper iPhone Could Bring in $7 Billion More

Apple’s (AAPL) iPhone sells increasingly more units the cheaper it gets, and therefore Apple should offer a really cheap version that doesn’t require a cellular data contract, in the opinion of Toni Sacconaghi with Sanford Bernstein, in a note to clients this morning.

Says Sacconaghi, the iPhone’s biggest limiting factor is the cost to consumers of adding a data plan to a cell contract, pushing monthly costs above $70. Without a data plan-free phone, Apple is confining itself to the smartphone market, just 17% of the total worldwide cellular handset market, writes Sacconaghi. (Mind you, smartphones are estimated to represent units of 225 million this year – not bad if you could get a decent portion of such a niche.)

Moreover, the standalone music player will go away over time, predicts Sacconaghi, and to replace that device, Apple needs a broader range of iPhones at different prices. “Apple’s more than 100 million iPod users give the company a huge opportunity to capture significant market share in the mobile device market, if it can successfully migrate these users to the iPhone. To do this, we believe Apple needs more mainstream iPhone models.”

Sacconaghi mentions two different approaches Apple could take that have been tossed around in conversations on the matter in recent months, one being an iPhone “Nano,” just a smaller version of the iPhone with a focus on music and little emphasis on email or Web browsing; the other being an “iPhone Touch,” which would be like the iPod Touch with a cellular radio but without the faster 3G capability and without the GPS positioning hardware. Apple could produce either one with gross profit close to the current iPhone’s 50% at a lower price to the consumer, he thinks.

And the payoff to Apple? Assuming 3% market share of the global cellular handset market, and assuming such a phone replaces, or cannibalizes 60% of iPod sales, he sees the company adding $7 billion in revenues and $4 billion in gross profit annually.

Sacconaghi has an “Outperform” rating on Apple shares and a price target of $135.

Apple shares Wednesday closed up 57 cents, or .6%, at $93.55.

Original post

Comments

[kidrazor:]

iPhone Touch? Are you guys that out of it? Come on, Apple has already mapped this out with better names and ideas than you could dream. How about as cost for processors and memory go down they simply keep the iPhone and reduce the cost very slightly, while introducing a faster more capable iPhone Pro? Sound similar to their computer line? And guess what, I'm probably way off. How about some articles instead of predictions.

Feb 05 12:20 AM

[legmaker:]

Great job, I use to own Apple as a trade a while back, but sold it around the time the carnage started. But I believe that Apple really looks good going forward here. I don't own any stock right now, but it looks as though the stock is heading towards $100. As for long term, you cant argue with a stock that has such a devoted following, and even though I just bought an HP, the IMac is so much better than anything else out there it is difficult to even explain. I have the older version of the Ipod touch and really like it. It is pretty slow, but out of date. Still works well when I don't want to lug a lap top into a hotel to check my stocks and options. Great job and God Bless.

Feb 05 01:08 AM

[Maxi:]

I think IPhone is one product which will have no impact of recession at least this year.

Feb 05 06:04 AM

[Jon T:]

Toni Sacconaghi has to be the most opinionated, and wrong, Apple analyst out there.

This was the analyst that predicted $10.4bn non-GAAP Q1 sales when the actual was $11.8bn.

$1.4bn is a big, big error for a so-called professional.

At least he rates APPL as Outperform.

Feb 05 08:41 AM

[sleepy:]

He's just wrong. His idea is what they call "pissing in the soup".

Without a data contract, it's a different, dead end product. Apple lets the other guys fight over those customers.

We are moving, apparently slowly, but actually quite fast, to a world where everyone has mobile internet everywhere. Apple makes products for that world, not for the ending telephony era.

Feb 05 09:14 AM

[who:]

Without a data contact the iPhone does not offer any superiority over its competitors. Instead it is much weaker, there is no video calling, no video recording, no keyboard, video playing is hampered, etc.

Switching to mainstream phones would be against likes of Nokia, LG, etc., which is much tougher job. Unlike now where its main competitors are BB and HTC for the private users.

Having a wider product means a different business model unlike the current high end niche model. Also, it may loose its appeal to the high end users should cheaper products are introduced.

Feb 05 10:10 AM

[Fremont Rea...:]

it's an interesting idea. The buyer would be the kids currently unable to convince their parents to pay for a data plan. All these kids would prefer an Iphone over anything they are currently buying for a $100 or less.

Feb 05 01:39 PM

[mr freddo:]

The IPhone is for Apple what MSDOS was for Microsoft. Apple is already downloading 5 million apps per day and has a huge jump on the competition thanks to IPhone. Users who love their IPhones will migrate to Macs on their next computer purchase.

If your getting depressed by this depression, go hang out in an Apple retail store. This company is still rocking.

Feb 07 11:48 PM

[A.L.E.X.:]

Without question, this is the most ridiculous, short-sighted, foolish and damaging advice I've ever heard. C'mon... tell us the truth... Bill Gates put you up to this, didn't he? He MUST HAVE! I can't think of a better way to destroy not only the iPhone itself, but the brand known as Apple by what you just suggested.

Why don't you suggest that Bose sell cheaper radios and stereos by removing their patented Wave technology. After all, more people will buy it, right?

How about Jeep Wrangler without a removable or soft top and no 4 wheel drive capacity. This way, people who would otherwise buy a Ford Escape might buy a not-so-off-road-vehicl...

I GOT IT! Grey Goose should sell Vodka without alcohol, reducing the overall cost of production. They can then not only lower the price, but now non-drinkers will buy it too, boosting the companies stock price through the roof!!!!

Look... you are a ding bat. Plain and simple. Ask Gates to pay you for this one, but tell him you are moving on to your next career as a cab driver. Ooooo.... if you take the back seat and the meter out of a cab, it will get more miles per gallon, so you can charge lower fares... which will attract more riders!!!!!

Feb 11 10:04 PM