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Apple faces tough choice on cheaper iPhone

Gregg Keizer | Jan. 11, 2013
Renewed talk of a cheaper iPhone shuffled into view this week, with sources as varied as the spotty DigiTimes to the more mainstream Wall Street Journal and Bloomberg claiming Apple will enter the low-price fray this year.

Which may be the stumbling block for Apple. In the past, company executives, including former CEO Steve Jobs and current chief Tim Cook, have said they wouldn't sell devices at certain price points because they couldn't while maintaining product standards.

"Apple wants to remain a premium brand, with solidly-built devices and all the appropriate support services," said Gottheil. The company may eventually produce a less-expensive smartphone, but it would still be at what the analyst called "the higher end of the price band."

"That's necessary to maintain their margins and their high level of service, as well as their brand integrity," Gottheil said.

The aim would be to make the price difference between an iPhone and a low-cost Android smartphone "not so huge that it becomes a painful decision for consumers," he continued. "They'd like to narrow that gap."

Both experts pointed to the iPad Mini, the scaled-down tablet priced $170 under that of the full-sized iPad, as an example of how Apple would likely approach a cheaper iPhone.

But like the iPad Mini, whose sales some suspect have been at the expense of the iPad, there's potential cannibalization if Apple ships a lower-priced iPhone.

"Here's the trade-off on cannibalization of your installed base," said Gold. "If you don't cannibalization your own sales, someone else will."

Apple CEO Tim Cook has used that same logic to defend speculation that the iPad's success has eaten into sales of its Mac notebooks.

"If you price phones effectively, it expands your market, it doesn't contract it," Gold concluded.


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