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back to article Dear Apple: Want to stay in business? Make an iPhone people can afford

Apple needs to start making bargain basement mobes because soon there won't be enough rich new iPhone customers left in the world to prop up its sales growth, a leading analyst has suggested. The claim comes in a report by Toni Sacconaghi, senior analyst with Bernstein Research, with the snappy title: "Are There Enough Wealthy …

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Oh Dear ....

This will upset Rik Myslewski who seems to think Apple is doing so well .....

:)

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Re: Oh Dear ....

Apparently, there will be FIVE BILLION more middle class people in the relatively near future.

The number of dirt poor is supposed to drop precipitously.

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Re: Oh Dear ....

What will the rich and the middle class eat ? There will be dirt left over of course, but before I sign up for Soylent Green recycling, I owe a huge Harrruuummmppphhh to middle class financial planners who might cause the rich to suffer a perfectly foreseeable protein shortage.

FIVE BILLION rookie financial planners are an ethical nightmare for the Industry.

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Re: El Reg is getting worse....

nope, they definitely are just getting worse.

Ferrari should also make a bargain basement car , as they will soon run out of rich people to buy their cars.

HORSESHIT

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Re: El Reg is getting worse....

Thats pretty much what I was going to post. Apple has no interest in being an everyman product. They make products they believe are stylish and desirable to go after the higher end of the market. To build an everyman product they'd have to cut corners that would ultimately hurt the brand.

Ferrari, Mercedes Benz and Rolls Royce could all make a shit car anyone could by - but don't because it would hut their brand. Equally, Hyundai or Tata could build luxury sports cars, but wont, becuase the brand has certain expectations that aren't compatible with a higher end product.

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Anonymous Coward

Re: El Reg is getting worse....

In fact at one point Rolls Royce cars did identify that the market was saturating, and went through a process of manufacturing improvement to reduce costs. (Their solution to getting good enough quality on the parts for the GM engines they used had been to buy loads of parts and throw away the ones that didn't make their criteria, and because they could not afford state of the art body presses, they had to spend a fortune manually filling each body prior to painting. I once went on a course run by the guy who had overseen the project, so this is not a myth).

Even so, they ended up being bought out and what saved them was the "new" millionaires in emerging markets.

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Re: El Reg is getting worse....

Apples and oranges.

The automotive market is completely mature. Any technological developments are going to be evolutionary, and as such the consumer base is well known.

Telecoms - particularly *mobile* telecoms is still an emerging industry, and as such likely to see revolutions in technology. This makes it a far more volatile market.

One possibility - and certainly a threat for Apple - is that a new revolutionary development is made, which can only work between two newer handsets. All of a sudden the lack of buying power for the new iPhone becomes an issue, as it prevents you from plugging your new technology.

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Re: El Reg is getting worse....

"Ferrari should also make a bargain basement car "

They do, they are called Fiats

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Gimp

Fiats

Following that idea, maybe instead of introducing a low-end iPhone, maybe Apple should create a new lower-end brand, and put iOS on its devices. That way they wouldn't 'taint' the Apple brand with inexpensive products by creating a new gateway drug opening a new market.

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Re: Ferrari should also make a bargain basement car

What kind of growth are investors pricing in for Ferrari vs Apple?

The article isn't saying Apple is doomed if they don't broaden their market, it's saying they won't be able to maintain their recent growth rate. Growth failing to meet inflated expectations may well doom their share price, and thus the board/senior management's jobs, but not the company itself.

The low-end market will eventually saturate as well, after all. It's a question of whether they want to be bigger and broader or remain (relatively) niche as they have in the desk/laptop market, and as Ferrari has done with cars. Either way, the choice has consequences.

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Re: El Reg is getting worse....

The Fiat group does make bargain basement cars to cater for people who can't afford Ferraris.

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Anonymous Coward

Re: El Reg is getting worse....

Actually, it's the other way round: it's FIAT that makes Ferraris. FIAT bought Ferrari many years ago, and Maserati later. The same way Ford bought Jaguar (just to resell it because no money were made), Volksawage owns Porsche - it was Porsche after all who designed the first VW - he too understood low-end cars were needed and not only high-end ones.

Many luxury brands are owned by less "luxury" ones, because often they can't survive alone. Look at how Ray-ban was acquired by Luxotttica, Contax by Kyocera (which got rid of the brand when it meant nothing to actual customers), Hasselblad by its distributor (now sold to a VC).

After all, it depends on how broad you can keep your market. If it drops below a given level, the company may become small enough to be acquired by someone else. Apple right now is big enough - very big, but at the end of '90s it wasn't, and it risked to be acquired or merged with another one. One issue for Apple is very dependent on just a few product models. On one side is an advantage, on another is a big risk. If that model fails, it brings down everything. It may be now the Rolex of phones, but unlike watches, phones don't have the long term values of luxury watches. An old iPhone is an old phone, not a valuable vintage item.

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Re: El Reg is getting worse....

"Ferrari, Mercedes Benz and Rolls Royce could all make a shit car anyone could by"

Er, the A-Class...?

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@JimmyPage "automotive market is completely mature"

How is the smartphone market not mature? What major breakthroughs have occurred in the past five years? I can't name one. CPUs got faster, more cores, better GPUs, 64 bits, etc. You got more RAM, more flash, newer wifi and wireless standards. Screens got bigger and higher resolution. Cameras got more megapixels and better light sensitivity. None of this compares to when a GPS got small enough to include in a phone and made using it for mapping possible, nor when capacative touchscreens rid us of the keypad.

All of this is just following technological progress. Cars get improved electronics every year too, its just that nasty mechanical stuff like engines aren't subject to Moore's Law so the improvements aren't as obvious when measured against the total driving experience. But most wouldn't be willing to give up their ABS and stability control that Moore's Law made possible. Modern cars make a lot of use of LEDs for exterior lights (and even in some cases headlights) which eliminates the problem of a single burned out bulb leaving you without brake lights or a turn signal.

The smartphone market is mature, all of those who talk about how Apple needs to "innovate" in smartphones are missing the fact that no one else is innovating in smartphones either, unless you consider gimmicks like a curved phone to be innovation. Something like that is akin to Ford putting out the Mustang with a new body style, its not exactly the invention of AWD or even four wheel steering.

Technological progress continues, but there isn't really anything on the horizon that we're waiting to integrate into a smartphone that isn't quite there yet. Not that there isn't progress for things that could be integrated, just that none are going to be a game changer. They're now able to make atomic clocks small enough to put inside a phone, but who needs that? Maybe someone will come up with a need for time accurate to the picosecond that our current ability to have time accurate to a few milliseconds wouldn't be good enough for - if so, coming up with that use will be the innovation, not the first phone to have an atomic clock in it.

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Re: El Reg is getting worse....

Ferrari is owned by Fiat. Have you noticed Mercedes and their Smart Car or BMW and their Seies 1? Your car analogy is faulty

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FAIL

Re: El Reg is getting worse....

On the contrary his analogy is great! His point is faulty.

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@DougS

I see your comments and raise you a bendy phone.

There's still plenty of headway to be made in the computing industry as a whole.

To use the car analogy I'd have to say fuel injectors were a major technological advancement, we refer to any post-2000 engine as "modern" and that's well over 100 years since the first engines.

Even if we accounted for the idea that the computers themselves are allowing us to invent the next jump that much quicker we've still a long way to go before we're close to the level engines are today compared to their inception.

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Re: El Reg is getting worse....

"The automotive market is completely mature. ... *mobile* telecoms is still an emerging industry, and as such likely to see revolutions in technology. ..."

I think that you're "completely" wrong; or you spelled "somewhat" incorrectly. The only point that I'll grant you is that the mobile cycle time (~1 year) is quicker than cars (~5 years).

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Re: El Reg is getting worse....

"Er, the A-Class...?"

And the B-Class, or as we call them: "loaners".

E

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Re: El Reg is getting worse....

That's what the 5C is about. Corporates who don't need absolutely new shiny phones, were buying 4S or earlier as the corp phone. While they don't need / want the latest greatest phone, they would prefer the latest 4G compatible chipsets. This is only possible with the latest phone, hence why the 5C makes sense. A 16GB 5C is a relatively small increment on 8GB 4S.

Jason

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Re: El Reg is getting worse....

"They do, they are called Fiats"

Excellent point, but then again Apple would be horrified to think people call iPhones what they call Fiats.

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Re: El Reg is getting worse....

aha, so the solution is that Apple buy Samsung and they they have that "other" brand that they can sell crappy cheap shit phones through, by making no changes at all.... ;-)

seriously, most markets are giving away iPhones for Free on a contract. who cant afford that?

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Re: El Reg is getting worse....

But don't they all use electronic ignition these days?

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Re: El Reg is getting worse....

A better analogy is the camera market. The two top brands, Canon and Nikon, have products for the full spectrum of customers, from low-end cheap compact cameras, to the top of the line, high quality and very expensive professional DSLRs and lenses. No one would say that the Canon and Nikon brands are tarnished by the low-end products, the high-end ones show what they are capable of, and keep the brand value.

Meanwhile other renowed brands that had not a product line broad enough failed. Pentax was sold to the less fashionable Ricoh, Minolta was sold to Sony, Contax was already owned Kyocera, which killed the brand when it didn't tell much to new customers. Leica, which only makes expensive cameras, is a niche market company. But that's a tech market that sells high-end items to tech users, not consumer ones.

It looks Apple got its game book from fashion, not technology. In fashion price and design are used to select customers and create exclusivity, because there's after all little else to do. Sure, you can use better textiles and leathers, careful manufacture, but the differences today are not so huge like in some technology sectors. Till now it worked, because of PR and "free" ads from the media. Could it work in the future, especially when competitors with a broader product range makes comparable devices? Maybe, as long as the smarphone stays a "status-symbol". The risk for Apple is if it becomes another commodity device, then the premium price for "exclusivity" may not work any longer.

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Re: El Reg is getting worse....

"A better analogy is the camera market. The two top brands, Canon and Nikon, have products for the full spectrum of customers, from low-end cheap compact cameras"

Actually, neither Canon nor Nikon do have truly low end cameras. Everything they sell is still quality just lower on the spectrum, but neither would even contemplate creating a £10 compact like the POS ones available as it would tarnish their brand. Samsung on the other hand, create Android phones which people buy thinking it's a bargain and then regret later when they realise it doesn't do anything useful.

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Anonymous Coward

Re: El Reg is getting worse....

Actuallyt, the analyst didn't say "Apple needs to make $9.99 crap phones". Both Canon and Nikon do entry-level cameras, below the $100 mark, street price. What's against a $399, $299 or even an $199 one? Sure, if you buy an entry level camera you don't expect it works and perform like a pro camera like Canon EOS-1D X or a Nikon D3x (which cost *thousands* of dollars, plus the cost of the lenses, again thousands if not ten thousands of dollars). But anyway it's a way to get people into the "system", and then later move them to the more expensive models if they outgrow the cheaper ones.

Not everybody needs a pro camera, as not everybody needs an high-end phone. Some people are completely fine with less poweful phones - not everybody use them for playing games or the like, which are the only applications that really need a powerful phone. Calling, messaging, web browsing, email, work perfectly with less powerful phones - and I guess a lot of iPhone users don't go much far from that.

Apple may risk that if the smartphone lose its "status gadget" appeal, it may not sustain the sales of expensive devices only. Something like that happened about forty years ago, when in the '70s SLR cameras became fashionable, many people who don't really need one bought one (and never changed the kit lens in their life!). Later the market changed - and more than one company found itself in trouble.

And even before, German manufactures of high-end cameras only couldn't compete with Japanese companies that addressed the market better. Zeiss-Ikon, Contax, Rollei are names that made the history of photography with legendary products, but couldn't keep pace with times, despite their technology.

Apple found itself already in such a tituation in the '90s, when it had an outdated OS (that's the reason they had to buy NeXT), and a product line that was no longer enough above competition to justify the prices and the lock-in in proprietary technology.

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Re: El Reg is getting worse....

Well, look at WAG what kind of car they produce. They have the brands VW, Seat, Skoda, Audi, Porsche, Lamborghini, Bentley, Bugatti.

If you exclude the upper league there. Almost every car they make is just one car. It's a Golf.

VW Jetta is a Golf, Almost every Seat model is a Golf, Same with Skoda. Audi A3 and TT are Golfs.

How did these companies become actually survive? Is it buy making the cheapest car out there? Or is it by making ridiculously many facelifts to basically just one car model?

Why are they all so expensive, though they all are just Golfs. Because most of the RnD money goes into facelifts.

That is why I as a former Audi driver, when I couldn't afford Audi anymore, i did not want to buy another expensive golf. I got more value from my money, with a simple Ford, although the gearbox and engine is crap in comparison.

Now to the big question, should Apple start making Kia's to stay in business, or should they start building Golfs in different shapes?

What was that iPhone 5c if not just another Golf. With the 5c they made a Jetta. What is the current 5S if not an Audi RS5 with Torque vectoring.

Has Kia yet reach break even, or is it still founded by it's investors?

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Re: Fiats

"Following that idea, maybe instead of introducing a low-end iPhone, maybe Apple should create a new lower-end brand, and put iOS on its devices. That way they wouldn't 'taint' the Apple brand with inexpensive products by creating a new gateway drug opening a new market."

Not 'taint' the Apple brand?

Who makes iOS, Microsoft? If so, that is a perfect plan, then they can 'taint' Microsoft for the crappy performance with their low-end brand. As they buyer "never" criticizes himself for buying to cheap hardware.

Did you say Apple made iOS, it that the same company that makes iPhones? Oh...

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Re: El Reg is getting worse....

They are not really high end.

Not like Ferrari or Meridian or Bentley or Lotus or whatever.

They use 200$ parts + manufacturing every time for the high end models. another 10$ or 20$ worth of flash for the even more expensive ones.

For another 10$ they could make the ipod touches phones.

Tata does make high end stuff (Jaguar).

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Re: El Reg is getting worse....

The problem with the 5C is that it looks like a brightly coloured toy. Not good for a corporate COO or something who pulls out a bright green phone! I work for a huge international company and the 5C has been completely shunned so far. Not least because the 5S looks like a more serious phone (in grey) and is only a bit more expensive. For cheaper phones, the 4S along with Blackberrys are still the favoured option here, although I doubt the latter will last much longer.

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Re: El Reg is getting worse....

True, also ironically it was the British Army who saved/ran the VW factory and mass produced the first beetles to try and stimulate the local ecomomy after WW2. The design was all but abandoned by Porsche. Interesting stuff.

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Re: @JimmyPage "automotive market is completely mature"

You sir do have a point, but you're still wrong. I'm not sure how much room for real innovation there is currently in the automotive market, but I'm pretty sure we haven't seen the last of significant changes in the mobile industry in the near future. One example would be the integration of a projector - yeeees, I know it has been done and didn't really take off but I still find something like that rather handy; rather than the idea itself, I think only the specific embodyment was rejected the last time.

Or there is the ongoing experimentation / push towards the fusion of desktop and mobile - once mobiles become capable enough (arguably already are) for the superficial, casual use that tablets keep proving is sufficient for a LOT of people, we might routinely start to dock our phones at home into HD peripherals - I do think that would be a rather major paradigm shift.

Not to mention the perpetually-on-the-horizon flexible screens (they're bound to arrive eventually, even if this year's curved ones are a pale shadow of the real thing) - I'm still drooling over the idea of a tablet-sized screen rolled up into a stick, which I can unroll depending on how much of it I need - not all that much just to make a call, obviously. Oh, and I'm still waiting for a phone that can scroll lists or change the volume by a slide on its SIDE instead of its screen...

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I wonder if..

..there will be enough idiots left in the world to keep reading the results of crap research like that.

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Re: I wonder if..

Come on, that graph is a genuinely great work of fiction!

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This report is complete and utter rubbish

The only thing that matters is does Apple continue to make a profit on its iPhone business. How exactly does making a bigger market with less profit and diluting your brand image by selling cheap phones help?

Is BMW going out of business becuase its not selling some cheap junk ass £5 car to indians?

As long as Apple keep their brand, keep producing quality, which people are prepared to pay for, then joining the race to the bottom is for idiots.

Thats why they are Apple with 150 Billion in cash and he's a analysts earning 60K a year if lucky, what a cretin!

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Re: This report is complete and utter rubbish

Profit is one thing, but shareholders want growth too. This report shows that their growth is becoming tied to a fixed market size of replacement devices.

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Re: This report is complete and utter rubbish

Yes, compare the article subheading: "Want to stay in business?"

...to the article itself: "This could mean that the fruity firm's growth will "invariably slow" unless it caters to the lower end of the market."

The stock-market-driven obsession with constant growth has obscured the (blooming obvious) fact that there's a major difference between *growth* slowing and going out of business because your *sales* slowed to a halt.

Growth *slowing* implies that sales are *still bloody growing*(!)... not likely to go out of business, then. Growth could grind to a complete halt, and you'd still be selling as many as you were before.

Market share can also make things look worse than they are, since if the market grows and your sales remain the same (or even if they're growing, but not as fast as the market is expanding), you "lose" market share. In the case of smartphones, many- probably most- of the new customers that make up the expanded market wouldn't have been buying an iPhone anyway.

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Re: This report is complete and utter rubbish

Thats not necessarily true - when a product turns from a rising star into a cash cow companies can respond by offering a dividend if they have nothing else to drive share growth. Infact if you're a defensive minded investor you are likely to favour high dividend stocks over high potential growth stocks.

Like other posters have said this "analysis" rests on the assumption that Market growth doesnt have natural limits anyway.

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Anonymous Coward

Re: This report is complete and utter rubbish

I'm guessing anyone can call themselves an anal-yst these days??

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Anonymous Coward

Re: This report is complete and utter rubbish (NOT REALLY)

Have you noticed that Mercedes came out with a C Class that starts at $29,900 USD?

I guess not.

It's not a "Race to the bottom" as you think, but a race for the "Rest of the Market".

Why else would Apple even consider bringing out the 5C?

Burn!

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Anonymous Coward

Re: This report is complete and utter rubbish

You say 'this report' as if it's an actual fact - while iPhone users are loyal and would buy a new iPhone next time a huge number are to new users and those old iPhones (when people do upgrade) also get passed on. Someone is still using my old 3GS (4+ years old) and my 4S etc. In comparison most old Android phones get dumped in a drawer as they have little / no value and no support.

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Re: This report is complete and utter rubbish (NOT REALLY)

Apple would have made the '5' into the lower / cheaper model but instead basically rebadged the '5' as a '5c' and not only gave a cheaper option but also opened it up to a wider market. I know people who really do not care about a fingerprint sensor but love the 5c colours.

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Re: This report is complete and utter rubbish (NOT REALLY)

>>>>Have you noticed that Mercedes came out with a C Class that starts at $29,900 USD?

Have you noticed that a hyundai is half the price, and still has 4 wheels?

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Anonymous Coward

Bias

"The only thing that matters is does Apple continue to make a profit on its iPhone business. How exactly does making a bigger market with less profit and diluting your brand image by selling cheap phones help?

Is BMW going out of business becuase its not selling some cheap junk ass £5 car to indians?"

One way though, towards Apples butt!

Of course BMW sell cheaper cars! This rant just highlights all fannybois bias toward Apple, you can not trust a fannybois comments.

(and to confirm, i'm not a fandroid or any other fking tag you want to catergorise me with)

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Re: This report is complete and utter rubbish (NOT REALLY)

"Have you noticed that Mercedes came out with a C Class that starts at $29,900 USD?"

Haven't you noticed that Mercedes has a car that sells for half that? They are called "Smart" although I don't know if they are sold in the USA

Seriously people, drop the auto analogies.

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Re: This report is complete and utter rubbish (NOT REALLY)

>Have you noticed that Mercedes came out with a C Class that starts at $29,900 USD?

There was a reason for that: The BMW 3 Series.

It turns out that a large number of people who buy luxury cars tend to be very brand loyal, once they start buying a particular brand they tend not to switch unless they have a really bad experience (or they have sufficient money to own several cars - a guy from Bentley once told me that they were typically the sixth car in someone's garage).

BMW started at the bottom end of the market (with things like the three-wheeled isetta) and worked their way up. Mercedes were at the top end of the market and have gradually moved down.

Why? Because the lower priced cars get "ordinary" people in to the brand and generally they work their way up. In the 1980's BMW's 3-Series acted as a feeder for the 5-Series and the 7-Series. Mercedes cheapest model was twice the price and once people were in BMWs they had to have a bad experience to even look at something else.

In order to counter this, Mercedes started with the C190 and then as that still wasn't an low enough rung on the ladder, they followed that up with the A-Class.

AFAIK, the mobile phone market doesn't really inspire quite the same brand loyalty at this point. I doubt there are many people buying a cheap Samsung who would automatically upgrade to mid-range Samsung next time rather than any other Android phone. A lot of people still just take whatever phone their operator offers them for free.

So, unfortunately, not a terribly good analogy.

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Re: This report is complete and utter rubbish (NOT REALLY)

Hyundai makes the Equus, starting at $61K, and the Genesis, starting at just over $34K, so they make expensive luxury cars, too.

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Pint

Re: This report is complete and utter rubbish (NOT REALLY)

>>>>Have you noticed that Mercedes came out with a C Class that starts at $29,900 USD?

>> Have you noticed that a hyundai is half the price, and still has 4 wheels?

Yeah, but people might see you in it.

I've seen a Kia Somethingorother parked in a mall display that was $42k !!!

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Re: This report is complete and utter rubbish (NOT REALLY)

Smarts are utterly expensive for what they are.

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