Apple iPhone 5s & 5c : Forget Low Cost Its Just High Profit !!

The most awaited launch event of the year kicked off today as Tim Cook unveiled the very expected iPhone 5s (but with a smaller s) and to everyone’s surprise a second new flagship the ‘iPhone 5c’ and not a “lower-cost” or lower-specced iPhone. So many Analysts will have to now revise (lower) their iPhone volumes outlook for Q4 2013.


iPhone 5s & 5c Flagships – Global LTE Ready

Apple is ignoring (again) the high growth smartphone markets especially the unsubsidized emerging and prepaid developed markets. Our Market Outlook service estimates that sub-US$300 smartphone price bands will contribute to more than two-thirds of the smartphone volumes globally in 2013. This is the segment which Apple is bravely ignoring and will be almost absent for some time now.

Apple’s strategy is clear here which is that it’s on an offensive to strengthen its position in “high-value” and “high-profit” premium smartphone market and protect its lion share of mobile industry hardware profits by clawing back share away from Samsung, LG , HTC and others. Apple has done three things right which will work in its favour atleast for the near- to mid-term to maintain its profit leadership:

1. Multiple Flagships Strategy: Apple is following its competitors such as Samsung (Galaxy Note 3 & S4), Sony (Xperia Z & ZL), Nokia (Lumia 1020 & 925) and Lg (Optimus G2 & G Pro) going with multiple super premium high profit flagship models i.e. iPhone 5s and iPhone 5c both with rejuvenated software, hardware design and features will provide fresh differentiated offerings to stimulate growth.

2. Multiple LTE band Support: Apple wants to tap high-growth areas within US$300 and above segments and that growth will be coming from LTE segment. We estimate almost 89% of the LTE smartphone volumes will fall in the  US$300+ and above trade ASP smartphone segment. So with iPhone 5s & 5c which has multiple SKUs out of which some support upto 13 LTE frequency bands (e.g. Model A1456) with one SKU (A1529) supporting three TD-LTE bands as well out of which one sits perfectly for China Mobile’s future TD-LTE roadmap. Apple aims to challenge Samsung and others in this LTE race maintaining its profit leadership with iPhone 5s and 5c and at the same time maintain scale and provide a solution to the fragmented  global LTE spectrum.

3.  Expanding TAM: With the new launches Apple also announced it has expanded its distribution reach to one of the world’s “premium” and advanced carrier, NTT Docomo, Japan with access to 60 million richer subscribers. The next big step would be China Mobile and TD-LTE capable SKUs of the new iPhones will help achieve that in next few quarters once the deal is finalized and tap into a subscriber base of 750 million users.

In addition to above key points the overall design change remains tangible from the main flagship perspective apart from the cosmetic changes and few unique features of iOS7,  moving to 64 bit arch as well as taking biometrics mobile  (in iPhone 5s) courtesy last year’s acquisition of Authentec. These incrementsshould be (again) enough for Apple loyalists in subsidized postpaid markets to upgrade but we still warn about a higher-level of ‘iPhone ecosystem fatigue” which could slow down the greater than expected sequential growth in some markets.

However, this gives a great opportunity for Samsung and others to attack the rest of the two-thirds of the smartphone market and maintain huge marketshare lead over the next few quarters and at the same time squeeze Apple with cutting-edge premium hardware as done by Samsung, HTC, LG and Nokia in the last two quarters.

Apple has thus for now given up the “low-cost” strategy and will continue in its march to just go after profits rather than volumes (market share).

Neil is a sought-after frequently-quoted Industry Analyst with a wide spectrum of rich multifunctional experience. He is a knowledgeable, adept, and accomplished strategist. In the last 18 years he has offered expert strategic advice that has been highly regarded across different industries especially in telecom. Prior to Counterpoint, Neil worked at Strategy Analytics as a Senior Analyst (Telecom). Neil also had an opportunity to work with Philips Electronics in multiple roles. He is also an IEEE Certified Wireless Professional with a Master of Science (Telecommunications & Business) from the University of Maryland, College Park, USA.

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