In announcing the March quarter's fiscal results, Apple revealed that profits dropped from the year prior. While there are many issues that factor into that, one of the greatest is the iPhone 4. Average selling price for iPhones dropped $23 from the year quarter. Why is that? It's because Apple is getting aggressive with the iPhone 4 in developing markets.
CEO Tim Cook and CFO Peter Oppenheimer repeatedly pointed to sales in new markets as part of the reason for the decline in profits. As in half a dozen times; clearly they intended to hammer home that Apple is investing in getting customers onboard the Apple bandwagon in new markets. Oppenheimer said that over the last quarter Apple has aggressively discounted the iPhone 4 in these developing markets. He said that they've seen incredible interest in the iPhone 4 in these markets.
Cook said that Apple has made the iPhone 4 even more affordable to make it more attractive to new buyers. While that might disappoint investors who always want more profit and more profit, Cook was optimistic, saying "we believe that the phone for the price point that we're offering is an incredible value for people" in these markets.
Apple's long been perceived as a premium product, with customers willing to pay supposed premium prices to own Apple products. But as with almost every Apple product, they'r expensive at launch and eventually drop in price as older models are phased out, manufacturing processes are refined, and scale is achieved. The original iPhone was $600, now you can buy a brand-new iPhone 5 on-contract for under $200. The first full-size iPad was $500. Now you can get an iPad Mini for $329, or an iPad 2 for $399.
By keeping the older iPhone 4 around, Apple's enabling economies of scale and manufacturing efficiencies from years of development and sales. The older components in the iPhone 4 cost less, and while Apple might be taking a hit on the profits in doing so, they can sell the iPhone 4 for less in developing markets. The goal is to lock in new customers now while modern smartphones are just beginning to proliferate in these developing markets. Said Oppenheimer: "We're willing to make short-term trade-offs in profits for long-term growth."
Reader comments
Apple getting aggressive with iPhone 4 in developing markets
Perhaps in doing this, we will start to see companies other than the Apple Store using iPhones as sales and checkout devices. Well played Apple.
I'd prefer they try to develop a nice phone for the needs of the developing world, rather than dumping older apple product there. Hopefully it's not a long term trend. I think he was saying the ipad mini was developed to open up apple to these markets.
I agree.
Yeah yeah the clever play with the ip4... but honestly I think Apple can manage to make a cheaper iphone that is a brand new product, lets hope they did not get too used to the margins. A $300 iphone even if its made from plastic would make a huge difference in developing markets.
I think this is a smart move and this is great for those developing countries.
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An unsubsidized iPhone 4 at T-Mobile goes for $450. With this they will conquer developing markets?