Apple needs to make a cheaper iPhone. That's what analysts are saying, which tells me they still don't understand Apple's market. The company has proven quarter after quarter through sales that consumers are fine with its price structure, and that it has no interest in following the overall market's make-it-cheap mentality.
Don't look for a low quality, low cost iPhone
Apple currently offers the iPhone 5 as its full-price model, the iPhone 4S as it's economy-priced model, and the iPhone 4 as its entry level practically free model. As new models come out, the older versions move down the price list so there's always three price brackets to choose from. That's the circle of life at Apple.
With three price ranges from consumers to choose from, Apple has managed to bring new buyers into the fold that otherwise may not have been able to afford an iPhone — and once they're in, they tend to keep buying the company's products. Loyal customers are a good thing because they keep giving you, and not your competitors, their money.
Analysts, however, aren't happy with the iPhone's market performance and think it's time for Apple to follow companies like Samsung and produce lower quality smartphones that hit a much lower price point. By doing so, they think Apple will take more of the smartphone marketshare.
Apple may not hold the largest percentage of the smartphone market, although it is one of the top players. What Apple does hold is the lion's share of smartphone market profits, which ultimately translates to more earnings for shareholders.
What analysts are seeing are new iPhone buyers dropping their hard earned dollars on the iPhone 4 and iPhone 4S instead of the iPhone 5, and that has them worried that Apple has lost its magic touch. They fear there isn't enough innovation happening in Apple's secret labs to draw consumers to the top of the line model, so instead they're opting for good enough: The iPhone 4 and 4S.
Quarterly activations from AT&T and Verizon show that the iPhone 4 and iPhone 4S are still big sellers, making up about half of their iPhone numbers. Overall iPhone activations are down for AT&T, Verizon, and Sprint compared to the previous quarter, as well.
AT&T's iPhone activations hit 6 million, down from the previous quarter's 8 million. Verizon activated 4 million iPhones compared to 6.2 million, and Sprint activated 1.5 million which was down from 2.2 million. Apple's quarterly iPhone sales hit 37.4 million units, which was a dip, but still a year-over-year increase.
iPhone numbers may be slipping some, but Yankee Group thinks Apple's smartphone is still going strong. In a recent study, the research firm found that interst in the iPhone is still high, and that it's the product of choice for many consumers. The study showed that overall, Android smartphone owners are inclined to make their next smartphone an iPhone, and they expect iPhone sales to top all Android sales by 2016.
While Apple's three-generation iPhone strategy seems to be working to draw in more buyers, that doesn't mean there isn't room for a new lower-end model targeted at markets that otherwise can't afford to get into the iPhone game, such as parts of India and China. An iPhone specifically for those markets could lead to a new sales boost for Apple, but it doesn't fit with the company's philosphy to sell that kind of product in every market.
Apple is all about making the best products, not the cheapest. Analysts have a long track record of wanting Apple's business plan to fit into the rest of the tech market. Remember when they were calling for Apple to follow Microsoft as an OS maker while letting any company make compatible computers? Apple has done pretty well ignoring analysts and doing their own thing.
The PC clone market turned into a wild free fall where prices kept going lower and lower, product quality suffered, and ultimately PC makers were showing almost no profit for their efforts to take marketshare.
Apple didn't run in the race to the bottom like other companies during the PC wars. Don't expect Apple to join in now.