Analysts Insist on Cheap iPhone Theory, Strong Arguments Put Forth by Barclays

“[Apple] needs to make sure it can hook customers into the Apple ecosystem”

By on December 5th, 2012 12:51 GMT

Barclays Capital analyst Ben Reitzes sees the iPad mini as clear evidence that Apple is beginning to consider sales of low-priced devices which, at some point in the next two years, should include a cheap iPhone too.

A belief shared by other Wall Street buffs, Reitzes’ theory doesn’t necessarily say that Apple needs this low-end smartphone, but that it could simply boost profits – something every tech juggernaut is after.

“Apple can benefit from those upgrading to higher end smart phones later on but the company also needs to make sure it can hook customers into the Apple ecosystem early enough in the upgrade cycle to prevent more consumers from developing loyalty to Android,” he writes, according to Forbes.

Reitzes and his fellow analysts strongly believe that many customers in developing markets can simply do with a device for “accessing Internet, email and an app store” - all elements that “may be enough to stimulate a purchase.”

“We believe Apple could offer a scaled down version of the iPhone at a low price point in order to capture the initial smartphone purchase from customers upgrading from feature phones – pushing new consumers into the Apple ecosystem earlier,” the analyst predicts.

The phone envisioned by Reitzes would carry a bill of material that goes below $150 / €114, and it would be sold without a carrier plan, “or [at least] be accompanied by a lower subsidy,” he writes.

Reitzes points to the iPad mini as an indicator that Cupertino is finally loosening up regarding tappable markets, including the low-end sector.

Avid fans will remember that the company’s management confirmed during the last investor call that the iPad mini bears very low marginal profits.

“We also note that the iPad mini shows management is aware of the need for lower-end products that ultimately offer a foothold in markets where Apple can capture upgrade growth (i.e. the 40% of the tablet market that is owned by mostly Amazon, Samsung, Google and ASUS),” the Barclays analyst writes.

Ultimately, Apple “is well-positioned to capture the most profitable pockets of the smartphone market in 2013,” Reitzes believes.

In related news, Barclays UK recently secured 8,500 iPads for its staff. The bulk acquisition of the tablet computers was made after Barclays IT management concluded that the bank’s employees preferred iOS over any other mobile operating system.
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