Apple feels no need to offer lower cost iPhone, says analyst

With a belief that consumers will continue to flock to its premium and more capable devices, Apple is unlikely to downscale its smartphones, says Morgan Stanley.

Lance Whitney Contributing Writer
Lance Whitney is a freelance technology writer and trainer and a former IT professional. He's written for Time, CNET, PCMag, and several other publications. He's the author of two tech books--one on Windows and another on LinkedIn.
Lance Whitney
3 min read

Apple seems to have no desire to sell cheaper smartphones, according to a report from Citigroup technology analyst Richard Gardner.

Meeting with Apple CEO Tim Cook and Chief Financial Officer Peter Oppenheimer yesterday, Citigroup analysts discussed a variety of topics with the two executives, notably the smartphone market.

Asked about the sustainability of Apple's average selling prices and margins for the iPhone, Oppenheimer suggested that the company will keep focusing on producing "great products," believing that customers are willing to pay more for them.

"We did not get the impression that Apple feels a burning need to move down-market in smartphones, but rather that the company believes consumer preference will continue to gravitate toward the more capable devices that Apple currently produces," said the report.

Cook also repeated his belief that innovation in Apple's iOS and other mobile platforms will help tablets eventually surpass PCs in sheer volume, a notion the CEO advanced last year when he was still chief operating officer. Apple's management pointed to the success of its iOS platform for the development community, noting that developers have earned $4 billion to date and $700 million just in the fourth quarter of 2011.

With Windows 8 ARM tablets slated to hit the market this year and laptops expected next year, the Citigroup analysts wondering about the possibility of an ARM-based MacBook Air. But that doesn't seem to be in the cards.

"We walked away from this meeting with the impression that Apple feels iPad satisfies--or will soon satisfy--the needs of those who might have been interested in such a product," the report noted.

Onto another subject, Cook spoke about iCloud as a "strategic shift" similar in importance to Apple's "PC as the digital hub" notion around 10 years ago. As such, he pointed to iCloud as key to bringing in new customers and keeping them once they're on the new cloud-based platform.

Eyeing Apple TV, Cook again referred to it as a "hobby" as he did last week at the company's earnings announcement. But he delved further by saying that the lack of TV content and the selling rather than renting of TV shows on iTunes could stall Apple's grasp of this market. Further, an Apple TV or Apple-branded TV is unlikely to move past the "hobby" stage unless the company could reach across multiple cable carriers and across multiple regions.

Finally, looking across the ocean to China, Cook said that sales from Greater China accounted for 12 percent of overall revenue in fiscal 2011, compared with just 2 percent in 2009.

Yet Apple is just "scratching the surface" in the country. Apple is selling the iPhone 4S through China Unicom. But the company still lacks agreements to offer the iPhone through China's other top carriers, China Mobile and China Telecom, noted the analysts.

Since the iPhone 5 reportedly will offer both LTE and TDSCDMA (a 3G standard used in China), a deal with China Mobile could be possible this year, according to Citigroup. But ultimately, capturing more of the Chinese market will be a key item on the plate of Apple's new retail chief--John Browett.