The words "cheap" and "iPhone" don't usually go together. Yet rumors that Apple is about to launch a smartphone aimed at the masses have gained credence this week — signaling CEO Tim Cook's desire to boost growth even if that means sacrificing some of the luster typically associated with the Apple brand.
The strategy is risky. With the company due to report stagnant iPhone sales in its results Tuesday, analysts are warning that while a cheap iPhone may increase sales, if Apple's not careful it could also cannibalize its more profitable premium smartphones.
The most recent reports suggest Apple will launch a 4-inch iPhone in March, an update of the iPhone 5s that will look more like a slimmed-down version of the current flagship models, with curved edges and the same color options. It is also expected to bring a vastly improved camera, Touch ID, always-on Siri and the Live Photos feature that debuted on the iPhone 6s.
Mark Gurman at 9to5Mac, who has a pretty decent record with breaking details of new Apple products, says the new device will be called the iPhone 5se, which would seem an odd choice of branding for a phone launched in 2016, when Apple is also expected to launch the iPhone 7.
"The reports of a more affordable iPhone are becoming more and more detailed and therefore more credible," Jan Dawson, chief analyst with Jackdaw Research, told International Business Times. "It sounds like this device may be more compelling than the 5c was, but it will be very interesting to see how Apple positions it, and especially how it prices it."
The iPhone 5c was hailed, before it was launched, as the budget iPhone everyone had been waiting for. However, when Apple finally unveiled it in September 2013 it was priced at $549. Within weeks of the launch Apple was cutting orders for the colorful smartphone as consumers failed to get excited about a "cheap" device that had a price tag higher than most premium Android phones.
Gurman reports that the iPhone 5se will replace the iPhone 5s in Apple's lineup and will be priced similarly. Currently Apple is selling an unlocked iPhone 5s (16GB) for $450, which is slightly outside what most consider to be the midrange price bracket of $200 to $400 — a sector of the market in which Apple has not been active to date.
Apple has been able to command a huge price premium on its iPhones simply because they are aspirational products. The company rakes in over 90 percent of the profits from the smartphone market, while its share of that market is just over 13 percent — this is thanks to margins of up to 70 percent on its smartphones.
The hugely successful iPhone business has been a driving force in Apple becoming the world's most valuable company, but with Wall Street analysts declaring the party over, the impact of a cheap iPhone on Apple's overall business is unclear.
A cheap iPhone would be a compelling choice for many users, both in mature markets like the U.S. and developing markets like China and India, where the cachet of the Apple brand is still a huge selling point.
However, cheaper alone will not be enough, as consumers want access to at least some of the latest features, including the Apple Pay mobile wallet. "A device that is an update of the [iPhone 5s] with updates that allow users to access important aspects of the software and allows Apple to monetize from Apple Pay sounds like a smart move," Carolina Milanesi, research director with Kantar WorldPanel ComTech, told IBT.
If the iPhone 5se is too compelling, Apple will begin to eat into its core business and therefore lose money on lower-margin models. "It's got to be clear that this is an inferior device to the new, top-of-the-line models in order for Apple to continue to sell plenty of those," Dawson said.
Apple has embraced the big-screen smartphone in a big way and has allowed third-party keyboards to be downloaded through the App Store. The only thing left to do, it seems, is launch a midrange or cheap iPhone.