Why Apple doesn’t need a new cheaper iPhone Nano alongside iPhone 5

In about a month from now, Apple should officially announce a new (and probably not that revolutionary) iOS smartphone, possibly called iPhone 5.

But will it be just one new iPhone? Rumors about a smaller and cheaper iPhone (iPhone Nano or whatever) have been around ever since the Cupertino company introduced its first smartphone back in 2007. And this year we’re seeing more reports about an alleged cheaper iPhone than ever.

Important publications like The Wall Street Journal and Bloomberg have informed the world that Apple may want to launch two new iPhone models this year: one as a high-end successor to the iPhone 4, and another one as some sort of an entry-level iPhone, made with emerging markets in mind.

However, it doesn’t make much sense for Apple to manufacture two new iPhones. And here’s why:

When iPhone 4 was released, Apple dropped the price of the iPhone 3GS to $99 (on contract at AT&T). Right now, the iPhone 3GS is even cheaper: $49. A similar thing can – and most likely will – be done after the iPhone 5 is launched: the iPhone 4 becomes the cheap model, while the iPhone 5 replaces it as Apple’s top of the line handset. But how cheap can the iPhone 4 go? I’d say not more than $300, or even $250 unlocked, and free on contract. Read on to see why I’m making such a seemingly crazy statement.

iPhone 4 16GB’s BoM (Bill of Materials) was estimated by iSuppli to be of $187.51. That was in June 2010, thus more than a year ago. Right now, I guess the same materials cost less, let’s say $150. Of course, the actual value of an iPhone 4 also includes R&D costs, assembly costs, plus packaging and shipping costs. But I’m pretty sure the R&D costs have been already covered a while ago – because Apple must have sold more than 30 million iPhone 4s since launch, and profits have been huge. It’s a bit weird that Apple didn’t specifically say how many iPhone 4s have been sold until now, but official figures* suggest the company may very well sell a total of 50 million iPhone 4s before the new iPhone 5 hits the market (October).

So, R&D costs aside, I don’t think I’m wrong to say that Apple could offer the iPhone 4 16GB for about $250 unlocked and still make profit. The profit margin would not be high, that’s for sure – but the iPhone 5 (which should have an average selling price of about $600) will certainly compensate for that.

With a $250 iPhone 4 16GB available in both GSM and CDMA flavors, Apple can penetrate any market, via any carrier. And let’s be honest, the iPhone 4 is a good smartphone – mind you, I’m saying this as an Android user. The iPhone 3Gs and 3G may have been just good phones, but iPhone 4 is a good smartphone (emphasis on smart). Priced at just $250 or thereabout, it will become an excellent one, even in 2012.

Sure enough, you may wonder: why would someone buy the new iPhone 5, when the iPhone 4 will be way cheaper and still offer a high-end user experience? Well, those who have the budget for a new and expensive iPhone will get one anyway, regardless of how good the older model still is. That’s how the mobile market is build. Just look at Samsung – it’s currently selling the Galaxy S i9000 (another excellent handset, by the way) for much less than what it’s asking for the new Galaxy S II i9100 flagship, and this doesn’t affect sales of the latter.

Now, I can’t say Apple will definitely not introduce a new, cheaper iPhone this year. I just think it has no strong reasons to do it, not as long as it can sell the iPhone 4 16GB for the price I’m thinking it can sell ($250). Making a brand new product implies lots of new efforts, including new R&D costs, new assembly lines, finding new component suppliers and so on. So why do that, when you already have a product that can act as a significantly cheaper alternative to your next big thing?

* – you can see Apple’s financial results (including iPhone sales) for the last four quarters as follows: fiscal 2010 Q4, fiscal 2011 Q1, fiscal 2011 Q2, and fiscal 2011 Q3.

Author: Florin

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  • Guest

    I think you need to do a little more research and stop relying on your speculation. This article is the epitome of why there are so many uneducated hypothesis trending. “I think,” Two words that never belong in tandem inside a piece journalism.

    I will note that I agree there will be no such iPhone Nano

  • http://www.unwiredview.com Florin

    Well, my speculations aren’t based on things I’ve dreamed or invented, but on research, and on the fact that I may know a thing or two about the mobile industry. Could you be so kind to point out where exactly my speculations are flagrantly wrong in this piece, or not based on logic?  
    There are plenty of articles / rants around (in the blogosphere) that contain speculations. Surprisingly, or not really, some of them can actually predict future events:
    I’m not a journalist anyway, and I never said I was. I’m a blogger. I think – no, I know there is a difference between the two terms, although they’re related in many ways. 

  • http://www.videoconverterfactory.com/ Jessica

    I think it is unnecessary for Apple to make an iPhone Nano alongside iPhone 5

  • http://penisenlargement.bz/ Joseph Chan

    I think pushing the iPhone4 as the “cheaper version” when the 5th version is out looks more logical to Apple.

  • http://twitter.com/gzost Alexander Gödde

    I’m wondering whether keeping last year’s model as the cheaper alternative in the portfolio wasn’t a one-time event. 

    Keeping this model would mean having to develop the iphone in a way that last year’s model and the current one in each case immediately communicate to a prospective buyer (through design, immediate experience, and spec sheet) that there is double the value in the new one.

    Being the newer model is part of that – but not that much of an argument in a lot of countries (e.g. in Germany we never had the US obsession with this-years model of a car).

    Differenting features are another way. These features were certainly there between the 3GS and the 4, but it could have been a problem between the 3G and the 3GS. 

    Design is another point, but, again looking at the iphone’s past, and how hard it is to come up with something distinctive that stays within the same design language, I don’t think Apple want to have a completely new iphone desing every year. Something like incremental changes for a few iterations before a complete overhaul seems likely. 

    So the continued differentiation is not easy.

    Additionally, I wonder from a customer psychology perspective. Somebody shells out top dollar for the more expensive, newer model iphone. He may not need the extra features, but wants to show that he only buys the best. Once the next model is introduced, possibly just a short while later, he is  indistinguishable from the cheapskates who bought his model after the discount.

    This may but extra pressure to upgrade on this market segment, but a small minority are likely able and willing to do so. The rest are robbed of a way of differentiating themselves with what, after all, is a major status symbol. 

    (some thoughts on how there could be differentiation between two iPhone models in an old post at http://gzostinthemachine.wordpress.com/2011/05/11/what-could-the-iphone-nano-be/ )

  • http://dinerorapidoysencillo.com/ Ganar dinero

    Would be nice. I use a 8 gig samsung Focus, at first I thought I would blow through the 8 gig, but with streaming with Zune, I still have 4 gig remaining. Apple doing this will hopefully force other phone makers to provide a cheap high end solution. I don’t see how anyone would have anything negative to say about this, it’s going to be a win for the consumer.