Apple may turn focus to more affordable iPhones, analysts predict

As smartphone market matures, tech giant may turn to iPhones that are more affordable

PUBLISHED : Sunday, 05 May, 2013, 12:00am
UPDATED : Sunday, 05 May, 2013, 6:56am

Apple will not release a large-screened "phablet" phone to compete with arch-rival Samsung this year, according to analysts, as the odds narrow the technology group will release a cheaper iPhone to capture the pay-as-you-go market.

Speculation over Apple's next big move is rife as a number of potential candidates - such as Apple TV or the iWatch - have fallen by the wayside. Last month, the company announced a US$55 billion share buyback, which bought it breathing space from investors. It is now expected to take a less radical development route by focusing on a cheaper, rather than larger, iPhone.

"The odds this year of a larger iPhone are zero," says Neil Mawston, executive director of Strategy Analytics. Describing the new product as the iPhone 5S, he added: "That's what we're hearing from our supply chain sources in East [Asia]. It seems the iPhone 5S will be pretty similar to the iPhone 5."

About 25 million phablets - smartphones with screens of more than 12.7cm diagonal length - were sold last year, according to IHS iSuppli, which forecasts sales will hit 60 million this year amid strong demand for Samsung's Galaxy Note. That compares to forecasts of smartphone sales of 908 million this year.

However, there is growing expectation Apple will offer a cheaper iPhone to attract new buyers unable to afford the top-end devices. Steve Brazier, chief executive of Canalys, says Apple would benefit by offering phones in different designs and colours - as it did with the second generation of its best-selling iMac desktop computers in 1999. "Why should business people carry the same phone as teenagers?" Brazier asks. "Kids don't want the same phone as their dads."

With the smartphone market growing less rapidly than it was, analysts question whether there is enough demand for a high-end Apple phone as prices are driven down by cheaper models using Google's Android operating system - Samsung's main platform.

The Chinese market has taken over from the US as the world's largest and is the main growth area. But most of its buyers are opting for cheaper phones, and the iPhone's data system is not yet compatible with China Mobile, which has more than 700 million subscribers.

Yet even a fast-selling "cheap iPhone" would not have a dramatic effect on Apple's gigantic revenues and profits, according to estimates by Benedict Evans, a telecoms specialist at Enders Analysis. In a note to clients, he calculates that a phone priced at US$200 which sold 40 million in a quarter - in effect doubling Apple's phone sales - would generate US$8 billion revenue and US$2.4 billion in profit.

That, though, would only raise first quarter revenues by 8 per cent and profits by 4.5 per cent. "In other words, a blockbuster new Apple phone that almost doubles unit sales … might only add 5 per cent to Apple's gross profits," he said.