I have shared my thoughts and opinions in the previous post about why Apple shouldn't release a lower-price iPhone to the market just for the sake of keeping the growth. Clearly, this is a controversial topic and I am glad that one of the readers shared his own opinion through this guest blog. Though it is more of 'economist' or editorial style. It certainly brings some fresh perspective on this matter.
The End of the Beginning
By HMP
Photo: Apple's flagship store on 5th Avenue, New York City
The week began with a two-term US president taking the oath of inauguration, and ended with US tech giant Apple ceding the title as the most valuable company in the world to ExxonMobil. Nearly US$ 50 billion, almost equivalent to the entire capitalisation of Boeing (another US giant facing unprecedented challenge) was wiped off Apple’s book as Wall Street reacted with alarming nervousness to its zero net income growth last quarter.
Interestingly, shortly after the stock plunge, an Apple software engineer tweeted: “Feels good to be the underdog again.” True, historical data of legendary tech giants (Microsoft, Cisco in the 90s) suggest that growth has to slow at some point. For a company that once posted revenue growth of more than 70% yoy; Apple now finds itself in a “Catch-22” situation, where low sales suggests slowing growth and on the other hand, high sales eventually leads to market saturation.
A forward-looking Apple could opt to resolve this dilemma by introducing some cheaper version of its existing products, such as a cheaper iPhone, to cater to the lower end of the market.
Potentially, it could also bring in new products, either to complement existing product lines, or to revolutionise the whole matrix. Speculation is mounting on an Apple-TV, as Apple’s CEO Tim Cook suggested during an interview, that the TV market is “an area of intense interest”. However, entering the TV market would immediately draw fierce competition from its current rivals in the mobile phone market such as Samsung and Sony. Even though Apple could outsource most of its manufacturing and focus on branding as it has done for its iPhone and iPad in the past, introducing a completely new product line would certainly put additional pressure on it’s already strained supply chains. Child labour was uncovered at several suppliers in China last week as they found it increasingly difficult to cope with popular demand. Apple terminated their contracts immediately.
Mr Cook was quoted at a news conference as saying “I think we have had a great track record here on the iPod at doing different products at different price points and getting reasonable share from doing that.” Analysts have warned that a cheaper version iPhone would cannibalise sales, further dent profit margin. Nonetheless, Apple’s philosophy has always been never to fear cannibalisation. The CEO sees cannibalisation as a huge opportunity, “if we do (fear cannibalisation), someone will just cannibalise us”.
It is likely that Apple would offer a price down iPhone 4 as the cheaper alternative to the iPhone.
This re-marketing of existing models would enable the company to prop up profit margin and maximise resources. In fact, iPhone 4, introduced over two years ago; and effectively free in many major markets with contracts, was selling so well that Apple could hardly keep up with the surprisingly bullish demand. Re-introduce older version of the iPhone could be the most cost-effective way to tempt cost-conscious customers away from buying cheaper Android phones.
Be it a price down version of its existing product, or a new, cheaper, re-engineered product, Apple has entered a new era as a mass-market player. Consumers and investors should now expect a more “normal” Apple, and less about a company that could single-handedly boost the US economy.
By HMP
Technorati Tags: Apple, Commentary, News
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