Dominating the high-end mobile phone market has been immensely profitable for Apple Inc. (NASDAQ:AAPL) but it hasn't done much to stop devices running Google's (NASDAQ:GOOG) Android operating system from gobbling up marketshare all over the world, particularly at the mid- and low-end of the market.
As Apple prepares for the September release of the iPhone 6, analysts are expecting two new devices, a 4.7-inch display, which is significantly larger than has ever been seen on an iPhone, and a 5.5-inch display. Those devices will mark a significant departure in look-and-feel from the 5s and 5c, which should drop down to become Apple's budget models and do battle against Android devices around the world.
“You’re going to have a pretty specific step up from the older devices to the newer devices based on the screen size,” said Stephen Baker, NPD research vice president of industry analysis.
While Apple's new devices will drive profits, it's relying on the older ones -- still excellent devices -- to do the marketshare battle against Android. That's been Apple’s strategy for several generations; in lieu of releasing a standalone mid-range phone, it drops the cost of its previous models to a more affordable price point. Its 1- to 2-year-old devices essentially act as its mid-range market.
That hasn't done much to stop devices running Android, which now has more than 84.6 percent of the global mobile market, Strategy Analytics reports, up from a little more than 80 percent a year ago. Apple's share slipped to 11.9 percent from more than 13 percent last year.
But this time the job falls to the iPhone 5c which is made of plastic and comes in several vibrant color options, two common traits of Android devices. Today the iPhone 5c starts at $99 with a two-year contract and $549 unlocked. After the unveiling of the iPhone 6, you could see that go to $49 with a two year contract and become a formidable Android-fighting device.
Right now Android dominates the mid-range, and up-and-coming manufacturers like Xiaomi are now marketing iPhone look-a-likes, running Android software for a fraction of the price of an Apple product. During the April-June quarter, cheaper devices helped Xiaomi sell more mobile devices in China than Apple did and took its spot as the second-largest smartphone company in the country.
So far, Apple has opted to move its devices downmarket rather than introduce new mid- and low-end devices to compete on market share. That's a wise decision, according to Andreessen Horowitz analyst Benedict Evans who believes a mid-range iPhone would be futile for Apple. As he detailed in a research note last Wednesday, the manufacturer has not only survived but thrived on the marketing of its high-end iPhone, which sells for upwards of $500 and takes half to two-thirds of the high-end mobile market.
The iPhone 6 is expected to be an immediate hit due to its larger screen alone. Morgan Stanley analyst Katy Huberty said a redesigned iPhone could drive a 20 percent increase in sales this fall, mostly by Apple enthusiasts who cannot help but keep up with the trends.
“[But] who wants to be stuck on the 4-inch iPhone 5s when a 4.7-inch or 5.5-inch iPhone 6 hits the shelves?” Forrester Research analyst J.P Gownder pondered. Quite a few, actually: those who don’t want to pay the premium price that will be attached to the iPhone 6.
Apple recently reported the iPhone 5c outpaced the iPhone 4s during the April-June quarter as its mid-range device. Apple could be setting the iPhone 5s up to take its place.