How a Cheaper iPhone Could Threaten Windows Phone and Android Growth

by Trefis Team
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Apple (NASDAQ:AAPL) is expected to launch a new iPhone on October 4 at tomorrow’s event. Rumors suggest that Apple might be launching not one, but two new iPhones at the event. [1] One of them will be the iPhone 5, which will be a completely new device with much better specifications than the iPhone 4. The other could be a refreshed version of the iPhone 4, with only some improvements. Apple is expected to price the second iPhone 4 (or the iPhone 4S) at a much cheaper price than it typically prices new models. Google‘s (NASDAQ:GOOG) Android and Microsoft‘s (NASDAQ:MSFT) Windows Phone 7 haven’t been able to defeat Apple in the high end smartphone market. However, Android is completely dominating the low end smartphone segment with budget devices. With its partnerships with Nokia, HTC and Samsung, Microsoft is also expected to launch multiple new devices in the low end smartphone segment soon. If Apple launches an inexpensive iPhone at the event, it could end up snatching market share from Android and Windows Phone.

Check out our complete price analysis for Microsoft.

With a Cheaper iPhone, Apple Could Conquer the Budget Segment

While Apple captures a majority of the smartphone industry’s total profits, it has lost the market share battle to Android. Microsoft’s Windows Phone is expected to overtake iOS and become the second most popular smartphone platform after Android by 2015. [2] However, if Apple does launch two new iPhones at the event, it can continue to cater to its existing customers with the iPhone 5 and also gain additional cost-conscious customers who want a cheaper iPhone with the iPhone 4S.

It may take a hit on its gross iPhone hardware margins, but that would be more than compensated by the growth in total units sold. Apple offers a more mature platform with many more apps and games than Android or Windows Phone. We can reasonably expect that if Apple were to launch a new, inexpensive iPhone variant, many customers who currently buy Android and Windows Phone smartphones just because they are cheaper would switch to the iPhone.

It could also help Apple break into markets like India and China where the iPhone is priced much higher than comparable Android or Windows Phone devices, and gain a significant amount of market share at the expense of Android and Windows Phone.

We currently have a $28 Trefis price estimate for Microsoft, which is around 10% above its current market price. Xbox and Windows Phone account for around 8% of the total Trefis price estimate for Microsoft.

Check out our complete price analysis for Microsoft.

  1. Apple to Release 2 iPhone Models, Al Gore Says, Mobiledia []
  2. Windows Phone To Steal Second Place From iOS By 2015, Techcrunch []
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