Apple Working On Cheaper, "Commoditized" iPhone

In what may be very disturbing news for the AAPL-borg collective and the broader Hotel AAPLfornia, WSJ is reporting that Apple is working on a lower-end iPhone, a move which it dubs “a big shift in strategy as its supremacy in smartphones has slipped.” To call this a big shift is a major understatement: no longer will Apple have the premium, ultra-luxury, aspirational product cache, which for a broad selection of its customers was the primary reason to keep buying iteration after iteration of the company’s releases and lining up in droves around the block on release day. Especially since anyone seeking a “cheaper” iPhone could just buy a previous generation iteration of a gadget whose new product launch cadence is now jumping to twice a year, soon thereafter three times, and so on.

This development certainly changes the demand dynamic, not to mention the profit margin aspect of the company’s flagship revenue and profit product, as it now will have to directly compete in a market in which it has virtually no experience, and which is dominated by OEMs and other companies that are far better equipped to deal with a war of margin attrition. It also means that going forward, just like the iPad Mini was a smashing success, in cannibalizing regular iPad sales, so ever cheaper iPhone products will increasingly compete with their more expensive, and higher margin alternatives, until the near unlimited cash flow ability of AAPL itself, so long taken for granted, is put into question and as revenues, profits, and EPS expectations all have to be revised lower.

Yet saddest for all those who have watched the progress of this iconic company over the past decade from the sidelines regardless of sentiment, the consumer products “Ferrari” that Steve Jobs built, just announced it is launching its own Yugo.

From the WSJ:

Apple Inc. is working on a lower-end iPhone, according to people briefed on the matter, a big shift in strategy as its supremacy in smartphones has slipped.


While Apple has explored such a device for years, the plan has been progressing and a less expensive version of the flagship device could launch as soon as later this year, one of the people said.

The cheaper phone could resemble the standard iPhone, with a different, less-expensive body, one of the people said. One possibility Apple has considered is lowering the cost of the device by using a different shell made of polycarbonate plastic. Many other parts could remain the same or be recycled from older iPhone models.

Apple, Cupertino, Calif., could decide not to move forward with the device. An Apple spokeswoman declined to comment.

The move towards multiple iPhone models is new territory for Apple. The company has prided itself on prioritizing profits over scale, offering a relatively small number of products targeted at the high end. While Apple has long offered different styles of iPod music players, the company has sold only one main new iPhone model, with different storage capacities, at a time since launching the smartphone in 2007.

All that said, this evolutionary step (the same taken many times in the past by such once luminary firms as, i.e., Nokia and Motorola) is not Apple’s fault: the company is merely doing what it can and should, and responding to market developments in a world, in which the end consumer has increasingly less disposable income.

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