Apple Rumored to Launch a Cheaper iPhone in September
The rumors of Apple (NASDAQ:AAPL) introducing a cheaper iPhone to cater to the large global prepaid market are picking up. According to one report, Apple could introduce a contract-free $350 iPhone in September. The iPhone is the most valuable business for Apple and accounts for more than 50% of our $430 price estimate for Apple stock.
Apple does not have much presence in emerging markets where prepaid penetration is high. Google (NASDAQ:GOOG) Android has gained a presence while Nokia (NYSE:NOK) is still a potent player in emerging markets although its fortunes have declined. Other low cost Asian rivals led by Samsung, LG, ZTE and Huawei have increased their presence in emerging markets. Our price estimate for Apple stock is about 30% above market price.
Mobile Phone Market in EM Exceeds 1 Billion Units
We estimate that more than a billion mobile phones were sold in emerging markets in 2010. The prepaid market is also also very large as two-thirds of the 1.5 billion mobile customers worldwide are prepaid users.
Apple Has Opportunity to Increase its Market Share
Apple's global mobile phone market share was around 3% as of 2010. A low cost contract-free iPhone presents Apple with a huge opportunity to expand its market share.
Risks from Average iPhone Pricing Declines
iPhone average pricing was in excess of $600 in 2010. By introducing a $350 iPhone for prepaid markets, Apple will erode its average iPhone pricing going forward in the hopes that the volume growth from emerging markets makes it worthwhile.
