5:00 PM — Before the iPhone 5c was announced, many analyst, users and investors alike praised the idea of Apple introducing a cheaper iPhone. When the announced took place, many were surprised that the iPhone 5c cost an astonishing price of $549. This was not much of a surprise as the company is always aiming for maximum profits.
In a new report from AppleInsider, we see that analyst Charlie Wolf from Needham & Company said in a note to investors that a cheap iPhone would erode Apple’s profits and cause damage to the company. Additionally, a cheaper iPhone should be avoided even in case the smartphone market becomes saturated when it comes to high-end models.
Currently, Apple spends $165 on making the iPhone 5c and spends an additional $120 that represents “cost of goods sold,” including “warranty expenses, freight, packaging, telephone support, licensing fees and more.” In this type of scenario, Apple would see 48.2% gross margins on the iPhone 5c, which is quite high and satisfying for the company. If Apple were to introduce an iPhone that cost around $350, they would have to build an iPhone that would cost $90, which is not very possible per Apple standards.
Charlie Wolf thinks that Apple will not change their pricing strategy and will continue to sell iPhones at the prices where they could retain minimum 40% margin. He says that “the evidence suggests that Android users are switching to the iPhone in far greater numbers than users switching from the iPhone.” Additionally, “in a saturated market, we believe, if anything, that the migration of Android users to the iPhone will accelerate, absent significant price cuts on Android phones. Obviously, growth will slow. But we don’t believe it will stop.”
What do you think?