January 11, 2013 - Cheap iPhone Good or Bad for Apple? By Zacks Investment Research
Apple has to be one of the most popular stocks to trade and their products are arguably some of the most cutting edge and cool. Since the early days, it has been Apple's mantra to build high quality, premium products using some of the most unique designs and materials with a user interface that screamed perfection.
I believe that it's this consistency and innovation that has propelled Apple and its products to rock star status. When you turn on an Apple product, you expect it to work extremely efficiently and be powerful relative to its competitors; you expect to be WOWED.
I remember when I made the move from blackberry to the iPhone and immediately noticed the reduction in flaws, more stable operating system and fluid interface that just functioned almost perfectly. Features aside, it was a perfect marriage of hardware, software and form for what it was designed to do.
There are now rumors (denied by Apple) that the Cupertino empire is going to manufacture a lower cost iPhone with scaled back hardware and a plastic (polycarbonate) shell as opposed to aluminum, among other potential changes. The phone would be almost free with a contract or $400 off contract (about half of what the normal iPhone costs).
The new device is going to be cheap enough to tap into the lower end of the Smartphone market (500 million users) dominated by several manufactures of which Apple has yet to touch.
There is no doubt that this product would squeeze Apple's gigantic margins, but at the same time it could add big sales growth numbers of 22 to 23%.
While I think a "sub-par" product deviates from Apple's soul and mantra, it could help them contain some of the competition nipping at their heels.
I think the danger lies in reputation and social stigma. If they do produce a new, cheaper, lower-quality product, does it diminish the Apple brand value overall? IF the new device is problematic, will the complaints and media coverage cause user and shareholders to doubt the brand? Do these lower end users even want an iPhone? I mean, you can get an iPhone 4 for free now (with a contract)!
At the end of the day, I would NOT like to see Apple sacrifice quality. Their reputation is why they continue to lead the space and frankly I am noticing their most recent product launches to be not as thought out and their products becoming less innovative and more "profit driven."
Steve Jobs knew that making a 'magical' product that performed better than advertized would sell no matter what. The new Apple seems to think that they should produce a product for everyone at every price point.
I wouldn't want to drive a "cheap Ferrari" and I don't think shareholders will either.
What are your thoughts?
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