Apple’s Losing Market Share in Pre-Paid Markets with No iPhone Subsidies

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It seems that Apple’s (NASDAQ:AAPL) strategy of not subsidizing the iPhone prices in predominantly pre-paid markets is working against it, although the strategy of selling the iPhone with a contract has worked quite well in developed countries such as the U.S. and the U.K. According to one finding, only 5% of the smartphones sold in Greece and 9% of those sold in Portugal were iPhones, with Google’s (NASDAQ) Android based smartphones taking the major share in those markets. [1] We believe that Apple will have to re-think its strategy in these economies to sell the iPhone.

Our $550 price estimate for Apple stock is about 5% above the current market price.

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Apple Going Strong in Developed Markets

Apple’s share of the smartphone market in the U.K. jumped by 7% year-over-year to reach 29%, while in the U.S. smartphone market, the iPhone grabbed 48% market share compared to only 43% by Android. These results goes to show that Apple continues to make rapid strides in the smartphone market, albeit more in the developed markets. [2]

But it Needs a Different Strategy in Weaker Economies

As discussed above, while Apple dominates the developed markets, more price sensitive markets such as emerging markets or certain struggling European economies are a huge opportunity for the company. Apple has traditionally maintained higher prices for the iPhone by leveraging its brand value and gained maximum profits in the process. However, we believe that Apple could gain by showing some price flexibility on the iPhone.

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While, on one hand, this means it may have to compromise on relatively high margins, greater market share gains could make this sacrifice worthwhile. Another option for Apple is to come up with a cheaper iPhone with cheaper specifications than the current iPhone 4S. Before Apple launched the iPhone 4S, there were strong rumors that it would release two versions of the iPhone with one better suited for emerging markets that are more price sensitive.

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Notes:
  1. IPhone’s Crutch of Subsidies, Wall Street Journal quoting IDC as the source, February 27th, 2012 []
  2. New iPhone? No thanks, say cash-conscious Europeans, Reuters quoting research firm Kantar Worldpanel ComTech as the source, December 22nd, 2011 []