The iPhone 5c was supposed to be Apple’s first low-cost handset. When the colorful smartphone arrived in September, however, it wasn’t priced much different than the iPhone 5s.
Should Apple release an actual low-cost iPhone? This would be an “insane idea,” according to Charlie Wolf of Needham & Company, as first noted by AppleInsider.
Wolf says there is no way Apple could release a low-cost handset without destroying the company’s highly profitable and successful smartphone brand. To prove his point, the analyst points to Apple’s current margins.
The iPhone 5c is available starting at $99 with a new two-year contract, or $549 unlocked and contract-free. Wolf believes Apple’s bill of materials on this device is $165, plus a $120-per-phone “cost of goods sold.” This includes warranty expenses, freight, packaging, telephone support, license fees, and more.
This means Apple’s gross margin on the iPhone 5c is 48.2 percent.
Wolf doesn’t believe it would be possible for Apple to produce a low-cost iPhone that results in an acceptable profit margin.
As noted by AppleInsider:
For example, to hit the so-called “sweet spot” of smartphone pricing in emerging markets, Apple would have to price a hypothetical cheap iPhone at around $350 without a carrier contract subsidy. If Apple were to target a hypothetical 40 percent gross margin with such a product, Wolf’s estimates suggest the cheap iPhone would need a bill of materials at around $90 — or less than half the bill-of-materials cost of high-end iPhones.
The analyst concludes there is no reason for Apple to produce a low-cost iPhone. He notes “The evidence suggests that Android users are switching to the iPhone in far greater numbers than users switching from the iPhone.”
Personally, I hope we never see the day when Apple reveals a cheap iPhone. Do you agree?