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Low Cost iPhone Maybe Launched in China & India

May 1st, 2013

Low Cost iPhone in China IndiaGiven incremental market potential in China and India and significantly heightened risk of cannibalization and margin dilution for Apple in the United States and Europe, Apple plans to launch Lower cost iPhone in emerging markets only to take on Samsung and other Android Mobiles .

Internally, analysts expect the lower Cost iPhone to garner ~30% share in the $190-300 price segment, less than existing iPhone’s 40-55% share in the high-end segment, due to greater competition from other incumbents (many of them local) in the $190-300 price band. We assume that Apple will work with more distributors and retailers in emerging markets in addition to its own stores to further expand its presence in the region.

It will carry gross margin of ~35%, below iPhone’s previous range of 49-58% and closer to iPad’s 23-32%. It will mostly cannibalize the older generation iPhone SKUs (e.g. iPhone 4S/5 today, which retails for $450/$550 unsubsidized), and we assign 50% cannibalization rate for these SKUs. Given a significant price and performance gap, we assume little or no cannibalization for the current generation SKUs.

This will help Apple sell ~50mn incremental iPhone units annually and ~50mn incremental iPhone units annually.

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