Apple will start selling a cheaper, 'entry-level' iPhone sometime this summer, for around $99 after subsidy, according to "checks," RBC analyst Mark Abramsky said in a note this morning.
* The main cost reductions would come from fewer features -- not a crappy 'iPhone nano' or something without a multi-touch screen. Abramsky thinks it might have a lower-resolution camera, no 3G Internet access or GPS, and a cheaper data plan (~$15/month) with a usage cap. We agree that lowering the monthly bill would help drive iPhone sales, but carriers won't be thrilled.
* Meanwhile, the iPhone 3G will get feature upgrades, such as a better camera, video capabilities. (See chart below.)
* He thinks Apple could sell 20-30 million of these cheaper iPhones in fiscal 2010, boosting Apple's smartphone market share to almost 20%.
* Cheaper iPhone will eat into iPhone 3G and iPod sales. And a lower subsidy and lower margins means Apple will have to sell three times as many to make the same gross profit from one iPhone 3G. He expects fiscal 2010 iPhone gross margins to shrink to 35%-37% from 50%+.
We agree that Apple will sell a $99 iPhone sometime this year. But we think he might be overestimating the damage to Apple's margins. For instance, he assumes that carriers will only subsidize it by $200, half as much as the iPhone 3G -- and about as much as they subsidize phones that drive zero data revenues. We think that might be a steep cut. But admittedly, this is guess work. More at; http://www.alleyinsider.com/2009/2/99-iphone-coming-this-summer
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