Some analysts have rethought their expectations on the price of Apple's expected lower-end iPhone 5C, and now believe the Cupertino, Calif. company will play defense by charging as much as $450 for the new plastic smartphone.
"In terms of unsubsidized pricing, I don't see any way the iPhone 5C can be priced below $400," Sameer Singh, an analyst who writes on Tech-Thoughts.com, said in a post Monday. "I think Apple is leaning towards $450 ... [although] they could go as low as $400 if it helps facilitate a deal with China Mobile."
China Mobile, the world's largest mobile carrier, has yet to strike a deal with Apple to carry the iPhone, although Apple CEO Tim Cook has met at least twice this year with company executives.
As recently as two weeks ago, Singh had pegged the iPhone 5C's unsubsidized price at $399.
Ben Thompson, who covers a variety of topics, including smartphones, on his Stratechery blog, also has reconsidered his iPhone 5C price bet. In a post last week, Thompson said he is now leaning toward $450 for the plastic-cased smartphone, an increase from his previous maximum of $399.
The pricing dilemma that Apple faces, said Singh, is that it simply cannot compete at the very lowest end -- the under-$200 unsubsidized price point -- that is the volume driver in emerging markets. Trying to do so would not only reduce profit margins, something Apple has always been loath to do, but the device would not be up to its self-set standards. Producing a cheap smartphone simply to get into the lowest category would not only damage Apple's brand but be contrary to consistent comments by executives, particularly Cook, who has repeatedly said that Apple would not chase market share for its own sake.
But if it cannot effectively compete at the low end, Apple risks losing revenue by pricing the iPhone 5C too low.
"A substantial cut in the iPhone 5C's unsubsidized price is unlikely to increase volumes in subsidized markets, but Apple would effectively be 'leaving money on the table,' especially in Apple's core, subsidized markets," said Singh.
Currently, Apple sells three models at three different price points: the iPhone 5 for $650 unsubsidized, $199 with a contract; the iPhone 4S ($550/$99); and the iPhone 4 ($450/$0).
If it can't reach an unsubsidized price significantly lower than the current lowest -- $450 -- there's no reason to bother, Singh said, as it would only cannibalize sales of the iPhone 4 price point with an even cheaper iPhone 5C, reducing its revenue in developed markets like the U.S. by the difference.
A $350 unsubsidized price for the iPhone 5C would, in other words, cost Apple $100 per unit in missed revenue. Customers would still get a "free" iPhone, but carriers would be paying Apple less than they do now for the two-year-old iPhone 4.
That's a path Apple's unlikely to take.
"[$450] would not help Apple compete much more effectively in unsubsidized/prepaid markets," Singh said. "[But] I think Apple may be incredibly wary of leaving 'money on the table' and is likely to opt for a pricing strategy that is defensive rather than one that eliminates the 'price umbrella' for competitors."
Apple is expected to unveil its new iPhones, including the iPhone 5C as well as a full-priced model to replace the iPhone 5, on Sept. 10, and start selling the new smartphones in a first wave of markets on Sept. 20.
Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is firstname.lastname@example.org.
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