Apple gearing up for $99 iPhone?

Come this summer, Apple is expected to dip its toe in the entry level market for its popular iPhone, according to a report by RBC Capital Markets analyst Mike Abramsky.

(Credit: Apple)

Apple is expected to debut a $99 iPhone, as well as an iPhone 3G with updated performance, sometime in June or July, according to Abramsky's research note on Tuesday.

Abramsky, in his report, states:

Checks reveal further entry-level iPhone details, including launches on existing carriers June/July with a data plan, entry-level pricing and a lower subsidy. Also expected is a 3G iPhone performance upgrade (performance, features, form factor).

An entry level iPhone could increase Apple's overall iPhone unit sales by 25 percent to 69 percent and bump up its slice of the smartphone market from an estimated 12 percent to 14 percent to 19 percent, the report notes.

But it could come at a price.

Apple could find itself cannibalizing its iPhones/iPod business. For example, Apple would need to sell three $99 iPhones to replace the gross profits of one 3G iPhone, Abramsky notes in his report. And it could also create a situation where Apple would need to lower its iPod pricing to sustain the momentum with its media player since the iPhone also offers such capability.

To compensate for a potential cannibalization of its gross profits, the computer maker would do well by expanding its distribution beyond its current list of iPhone carriers, the analyst notes.

From Abramsky's point of view, Apple investors should remain wary.

Apple's shares have risen 16 percent since it reported record first-quarter results. While the shares could possibly go higher ahead of the iPhone update, Abramsky remains concerned that Apple is still largely a premium-priced hardware maker standing in a global recession that's acting like quicksand.

Talk of an entry level iPhone has surfaced in the past, from rumors of an iPhone Nano to a $99 iPhone at Wal-Mart.

Apple was down less than 1 percent at $97.20 a share in early morning trading, coming off a 4.6 percent decline on Tuesday when it closed at $97.83 a share.

[AWeber3030]

I personally think that if Apple we to do this, they would be hurting themselves. There is no need to introduce an entry level iPhone.

[MrZook]

Agreed. They sell plenty of iPhones as it is. Introducing a more affordable, watered-down version would saturate the market with an inferior product. As a result the "iPhone" brand would lose credability.

[jneclar]

Yeah, but with our current economy, I think introducing a more affordable iPhone with an affordable data plan is strategically a good idea. This also will help boost their revenue sales especially in the wake of money-saving consumers, such as myself.

[ca5ter]

Apple has always added more features (speed, storage, applications, etc.) to the existing product and maintained a consistent price. With the iPhone their is little history to go by, but based on the comments by acting CEO Tim Cook, I don't see an iPhone with less features than the current one going to market.

[xcal78]

Reducing the cost to buy something will hurt a company? Have you heard of the Wii? One of Apples MAJOR flaws is price. If they can reduce the cost on its' products it becomes a much mroe competative race. If I could get a Mac for not too much more then a PC yea I'd get one. If Mac's stay hundreds of dollars more expensive I'll pass. The same can be said for the iPhone. I know lots of people would would consider $99 where $199 is out of consideration.

[funyun2]

Totally agreed. Apple is not making a product as good as the iPhone for $99, which is cheaper than most smartphones out nowadays. It's apple, and apple doesn't do cheap. If they actually did do it, they would definitely cut some corners. I'm thinking no 3G, no GPS, less than 8GB, (2,4 GB at most) 1.3 megapixel camera without flash or video, and an extremely stingy data plan. Maybe they could make a decent entry level iPhone for $149.99, but not $99.

[C433Z]

Well I for one would definately buy a watered down version if they made one, cause there's no way i can afford a $30 a month data plan.

[donsms]

The reality is every company will be affected by this economy no matter how great they think they are.Lower sales and layoffs will prob effect Apple just as any other tech co.Apple will have to adjust to lower price points or face losses like the rest of the industry,no one will escape.

[pjhenry1216]

@funyun2: Did you even read the expected specs of the cheap iPhone? You basically said it word for word other than the memory (they expect 8GB, whereas you ddin't). Everything else you said would be needed WAS already stated in the specs.

[Noneyabeeswax]

"Agreed. They sell plenty of iPhones as it is. Introducing a more affordable, watered-down version would saturate the market with an inferior product. As a result the "iPhone" brand would lose credability."

And make all you who paid 400.00 for a stupid phone, look ridiculous. I could buy an iphone, but frankly if it was coated in 18k gold, I still wouldn't buy one.

But it's a smart move on their part, because I'm sure there are a lot of kids out there with allowances to spend, who are drooling over this phone. They'd do better yet, to make it available pre paid, as well. Then they'll get every level of cell phone user out there. The cell phone market is saturated, and the economy is bad. For people who live in the real world, people are definitely thinking twice about any kind of expenditures, much less another cell phone. If Apple wants to hijack their competition, they're going to have to be creative. And it looks like they've come up with a good idea. I would be much more likely to buy a 99.00 phone than any phone that costs more than that. Simply because I have no use for a fancy phone. I need communications, and as long as it's got a dial pad, and I can make calls on it, I'm pretty satisfied. I don't haul my danged phone with me where ever I go, like it's a grafted on body part.

This crap with the phones is getting pretty ridiculous, and the phones they have available in Japan and other countries make the iphone look like a chump, even at 99.00

[make_or_break]

The problem with this premise is that iPhone and its hefty monthly service cost doesn't suit a lot of people. If AAPL wants the sort of successful market penetration they've enjoyed in the past with the iPod, they more or less have to offer a cheaper phone. I can think of quite a few people who would get REAL tired of having to drop north of a C note each month to AT&T.

Your notion is that somehow the iPhone Shuffle would just be a cheaper version of the Real Deal. But that doesn't lessen that service rate you pay each month. Any iPhone Shuffle would have to have a subset of all of the 3G iPhone's capabilities. You can still play music on it. You can still watch videos on it. You can make phone calls on it. Heck, you could even do some apps (namely games) on it. But it'll be EDGE. And it won't have Wi-fi.

For the really, REALLY kewl stuff...you have to pony up for the 3G iPhone. And how does that model compromise the upper end of the iPhone business, especially since the iPhone Shuffle is targeting consumers that wouldn't buy the 3G to begin with?

[thelemurking]

What they should do is release either a CDMA or PCS version of the iPhone and put it out to other carriers instead of sticking with AT&T. If the iPhone was on Sprint or Verizon, I would definitely have one by now. But for the time being, I am satisfied with the iPod Touch 2g. I am not going to switch carriers for a phone.

[longislander]

I agree with you. Personally I feel it's BS to offer a phone on one carrier. I would not switch my carrier that I've been with for over 10 years. Apple, Blackberry, etc can keep their phones.

[linuxgeek90]

I think you are right.

Actually, the phone cost doesn't really matter to most people; it's the req. data plan...

[Grumpypaul]

When they break their exclusive arrangement with ATT I know at least two people who are getting one, my wife and I. Until then we'll "suffer" with what we have.

Isn't the two year anniversary coming up soon??

[sythara]

Totally agree. In my area there is no ATT coverage, so I could not get iPhone even if I wanted to (and yes I;ve looked into it). If they were to open it to Verizon then I'd consider getting it (still cannot get over the fact there is no physical keyboard)

[lpa107798]

I know that personally I'd buy an IPhone if it were less expensive, but even at the same price I'd buy one if it was available on Verizon or Alltel instead of just A T & T..I don't care for that carrier and I know tons of people that feel the same way.

[crazynexus]

Agreed. In my area of the world, ATT has spotty coverage and is on roaming when outside of any city/town. My wife wants on Iphone badly, but I pointed out to her ATT used to be Cingular, who dropped her for being on roaming all the time and costing them money (and she's in the US Air Force, she got stationed in N Dakota where Cingular/ATT didn't and doesnt' exist). Then she had some not nice words for the company. They need a CDMA version for Verizon/Alltel (Our current carrier). Their sales would multiply MUCH Faster than releasing a dummied down version of the Iphone on just ATT.

[snicka12]

verizon had the chance of getting it but they wanted to put their own ****** programming on it, so apple said no, and at this point it would be pointless for apple to make a cdma/pcs phone for such a small market, because the rest of the world uses the newer GSM service. thats why i think that them making one for cdma/pcs is out of the question...

[perontopsp]

Well I'm pretty sure that Apple has a contract will AT&T, so until that expires don't expect much, just dish out for a third party, insanely expenseive unlocked edition.

[myles taylor]

All of you who are saying that Apple should release with another carrier really don't see the big picture here. Carriers are subsidizing the phone which means that in order for Apple to make money on it, they have to have deals with the carriers. That means in some ways, the are at the "mercy" of the carriers or they would need to sell the phones for $600+ in order to make money on them. Apple can't just walk away from their AT&T partners so easily.

[make_or_break]

I imagine that at least part of Apple is wondering if an exclusive contract with a single carrier for a given market is really a good thing. Control is all about saturation; there's only so much mileage AAPL is going to get with a single phone coupled with a single scumbag carrier. Here in the States, there are plenty like me who see The Death Star as a vile, foul creature...one that we'll never sign up with again.

Why do you think Apple went to Verizon FIRST?

Me? As neat as the iPhone is, I'll never leave T-Mo just to have one. I'm satisfied with my 2G Touch like thelemurking is with his; I don't need to have ANY more of my money going to AT&T. They've already ripped me off for years the last time around...that's way more than enough for my lifetime. They did their best to burn bridges, no uber phone is going to make up for that. I'll live with two devices in MY pocket before I'd ever go cringing back to that evil service.

[aboutjack]

Somebody who actually understand manufacturing needs to proofread these posts before publication. The total difference in China factory BOM cost between the hypothetical reduced functionality specs shown here and the higher spec hypothetical revised iPhone is a staggering(ly small) $30. So, this entire thread of speculation is simply nonsense -- for costing/pricing reasons -- not to mention to dozen major functionality problems such a shift in component mix would create with the product.

There was a time when technology analysts and writers were required to actually understand technology. Where did those days go?

In a nutshell: There is no such $99 iPhone coming. Period.

[cb3431]

Do you work for Apple? Are you the final decision maker at Apple? If not then you, too, are speculating.

[thelemurking]

Which is exactly what everyone does with Apple rumors... they are "speculating"

[aboutjack]

Actually, I develop CE products with China manufacturers for a living. I am not speculating. The BOM difference is between $28 and $31, only, between these two sets of specs. Unlike a zillion others voicing "opinions," this is just simple fact: As described in today's news this suggested iPhone permutation at this $99 AT&T retail price simply isn't happening. While losing 90% of the product's most compelling functionality and usability, the factory cost only drops 30-bucks. It ain't happenin', folks.

[pjhenry1216]

I think somebody didn't bother checking the article's math. The profit margin on the iPhone 3G is huge. The cost that they'd be selling it for is still more than half that of the 3G. It was already stated that to make up for the lost profit, they'd have to sell 3 cheaper phones. With the prices you give (only $30 cheaper to make) and the prices given in the specs... guess how many cheap copies they'd need to sell to make up the profit for one 3G phone? About 3.

So yea, you're math is right, but in no way does it contradict the article's math.

[Noneyabeeswax]

"In a nutshell: There is no such $99 iPhone coming. Period."

Come on, don't you guys don't bother to read the whole article? Look at the chart up there. What do you think subsidy means? Doi!

The phone will be subsidized just like other expensive phones are subsidized by carriers if you enter a one or two year contract. The phone will cost the same, but the customer will only pay 99.00 of the cost, or 199.00/299.00 for the 3G. You just won't be buying the phone from an Apple retail outlet. I imagine Apple did that at first to make their initial profits on the phone, now that sales are slowing, they're wanting to make the move of offering the phone to other carriers, and they could very well put a dent in sales of other phones that are sold, because of its popularity, If they do this.

It's a savvy business move on their part. And could hurt a lot of other "smrt phone" sales.

I'm curious about the phone Palm is coming out with. It could be the only other phone on this level that can compete realistically with the iphone. And that may be another reason they've decided to go with several different carriers also. I doubt Palm will will make people sign up with AT&T for an exorbitantly priced plan just to use their phone.

So yeah, I think a 99.00 iphone IS sounds plausible. If they're really smart they'll make the move before Palm releases their new phone, and sweep the market. Then Palm will have to take the leftovers.

[Fantastipotamus]

Why don't you cite your sources as to how your arrived at your cost analysis? Do you know how much the processors cost? Especally when the rest of the analysts are quite sure the processor will also be upgraded (most likely to handle the new pared down version of Flash they're working on). There's no way you would know the cost of that processor when it hasn't even been *announced* what type it even is. This probably won't even be known until someone buys one on launch day and then rips it apart to determine what's changed.

What about how much Apple pays for their flash memory? Or how much the GPS chipsets cost? You're trying to telling me that a touchscreen running 480x320 res isn't appreciably cheaper than one running 720x480? I think you're pulling numbers out of your.. something-or-other. Additionally, if you don't think they can drive down their suppliers price now that they've got a proven percent, you're fooling yourself. This is walmarts business model, drive down supplier cost by promising volumes.

It's entirely possible that they may lose money on an entry-level iphone, that I won't refute, but I'm quite willing to bet they're offsetting that with the margins on the newer version (if/when such a thing is rolled out). Not to mention profits from the App Store, and their cash cow, the Macbook.

Lastly, the price Apple gets ISNT $99, that's the price that the carrier gets, as the carrier subsidizes the phone, but then reaps the benefits of the required data plans.

[make_or_break]

The hardware doesn't make the profits; the monthly service plan does. If the cheaper plan attracts 3 or 4 (or even more) buyers that you wouldn't otherwise get with the regular 3G iPhone regardless, how are all of those additional 2-yr lock-ins now a loss? Sure, Apple doesn't make the bucks on the phones, but they still get a cut of what AT&T bills out. And now these consumers--given their lovefest with Cupertino--are in a position to trade up in the future. Fostering brand loyalty also stuffs the coffers, you know.

[jameskatt]

Apple does not sacrifice margins for any of its major products. 30% profit and more is its mantra.
The iPhone, particularly is a great example. It gives Apple 50% profit per iPhone sold.

Thus the $99 iPhone cannot exist unless Apple's profit margins are maintained.

Apple only lowers the prices of its products when the manufacturing costs are reduced, allowing Apple to maintain its profit margin.

[joe3x]

ummm if there making money off the phone plans as well, this idea cant be to far off.

[tcr071]

They aren't making money off of the phone plans anymore. They changed the arrangement so that AT&T will subsidize the cost of the phone, which is why it dropped in price so dramatically, and keep all profits from the service contract.

Apple sells the iPhone to AT&T and that is their only source of revenue from AT&T. Of course they generate ad revenue from the applications and money from the applications themselves but they no longer get monthly royalties from AT&T.

[Vegaman_Dan]

Analysts seem to spend more time making up news than analyzing it, it would appear to me.

A $99 iPhone would be a neutered unit which would likely lower the perceived value of the overall product line, affecting the sales of the higher units. At that point, they would have to go with the volume loss leader approach, hoping that they can make up the difference in sales of higher end units and I just do not see that happening.

The entry price is about right now where it is. I don't think that price is the stopping point for people. Now if they could somehow get that monthly data plan with voice down from the $85-120 (varies in your market) down to a $40-80 range, then they could really steal the market. But that's up to the carriers and not Apple.

[MacDellMan]

This is all made up and rumor. Steve already stated VERY clearly (and many times) that Apple would NEVER release a low-end iPhone. It's not the market they target. It's kind of like Porsche releasing a $15,000 fuel efficient commuter car - it's just not going to happen. The iPhone is already very well priced compared to other phones out there. What the need to focus on is a multi-tasking update to their iPhone OS, some of the main missing features (cut-and-paste, etc.), a better camera, and better battery. If they do that and keep the price point about the same....they will have a winner. Let's stop asking for an iPhone that's less than an iPhone. What's the point.

[Vegaman_Dan]

Porsche did release a poor man's Porsche- the 914 VW powered version in the late 70's/early 80's. It is widely regarded as not being a 'real' Porsche and dismissed by Porsche owners. That sort of scenario is what Apple would be wise to avoid.

[Anonymous Hero]

Wow, Dawn. You need a new source. Holy crap, this guy is completely freaking clueless. They are going to offer two 3.5 inch phones with different resolutions? Do you know how big of a pain that would be for them? They're going to offer a less than 2MP camera to save money? What a great sense of humor, you guys made my day.

[brandonbee]

Of course, this is the way it always works.

1) The analysts make up some rumor (like an iPhone nano).
2) Wall Street doesn't like such a thing as the iPhone nano, but the stock soars pre-announcement.
3) Apple announces a new iPhone, but NOT an 'iPhone nano'
4) The stock tanks because :
a) the 'iPhone Nano' was not announced.
b) Even if the iPhone Nano IS announced, it has the exact same specs as rumored, with nothing 'EXTRA'.
c) The iPhone nano is announced and is wonderful. The stock tanks because Wall Street thinks that apple's profits will go lower.
5) Apple's profits in the next quarter are the highest ever.
6) Stock tanks because Apple can't possibly do better.

Very typical.

[sythara]

rofl.

you are so right on so many levels.

[Fantastipotamus]

This is the best way to make money off apples stock (I'm a shareholder and have seen it happen, ask me when i'm pissed off the stock tanked because "new product X came was released as anticipated"). Your flowchart works to a frightening degree, nice work. : )

[McPlot]

Take a close look. It is a $300 iPhone, and the cell company pays $200 of it. Plus AT&T is likely to charge extra per month for it like they do with people with iPhones now.

I agree with the comment if they really want to push the iPhone, they need to make PCS/CDMA versions of it.

[The_happy_switcher]

Gee I hope not. $99 would bring a lot of riff-raff into the club.

[Vegaman_Dan]

And such comments further the elitist reputation that Macintosh fans have earned in the last few years, unfortunately.

[The_happy_switcher]

I don't considerate it 'unfortunate' to openly embrace superior technology with pride.

[xcal78]

So people who don't want to spend $200-400 are OK but people who spend $99 are riff-raff? Wow I'd never have the balls to say that in public. Yea I'm sure the amount your willing to spend on cellphone something determines your social status. LOL

I can hear it now, "Yo dude you have a pair of Blublocker sunglasses ($20) so your riff-raff cuz I own Oakley's ($200-400) now get out of my way!". Reminds me when we use to build our own PC's then have a LAN party and debate who's wallet was bigger because of the system we owned. I'm glad most of us grew up from that stage.

[Vegaman_Dan]

AppleRocks1963: I don't think you quite understand the issue at hand here with the elitist attitude you are displaying as an Apple fan. Perhaps you may want to examine the term 'elitist' or even perhaps 'racism'. Both would apply to the way you are portraying Macintosh users.

[jgvillan]

What the heck does that mean?!?!?!

[Constable Odo]

Ewww.... Letting riff-raff into the exclusive iPhone club is an abomination. Can't Apple just let those people use G-phones or WinMo handsets. $199 and not a penny less. I don't want to see my unemployed neighbor with any iPhone in his hands.

The problem isn't the initial cost of the iPhone, it's that lousy $80 a month of carrier charges that's killing iPhone sales.

[The_happy_switcher]

@Vega: "'elitist' or even perhaps 'racism'. Both would apply to the way you are portraying Macintosh users." Racism? Really? I can't wait for you to explain how my comment was racist. Wow, and here I thought you might be a somewhat logical individual.

[xcal78]

Everyone knows the more it costs the better it is! I assume your part of the Bose club, Oakley Club, and Lexus Club too?
______________________
"Racism? Really? I can't wait for you to explain how my comment was racist."

I wouldn't call that racist myself either but I would call it one of the finest acts of discrimination I've seen in a long while.

[Wak_Em]

AppleRocks1963 - "I don't considerate it 'unfortunate' to openly embrace superior technology with pride." Is your spell/grammar checker running on superior technology?

[ywkhgqo]

applerocks, [CNET editor's note: Personal attack deleted].
Superior technology? almost 2 years after the iphone has come out and still it can't send MMS messages.
Get over yourself

[usarioclave1]

Speculation!

But - Apple may have determined that it makes more money from the App Store and OTA iTunes than from hardware subsidies...or that the increased purchases of new users would make up the difference in revenue. It would also totally crush any competition that's left in the iPhone, iPod, and iTunes store/App Store space. For $99 + apps + music, why the heck would anyone get any other phone?

At that price point, the value proposition is pretty overwhelming.

[funyun2]

But you need to remember that this is apple. Apple does not do cheap, and even if they somehow manage to get cheaper, they screw around with the specs. When they announced the aluminum macbooks, they left the white macbook for a cheap (for apple) $999. But, at that price, you got integrated graphics, a tiny harddrive, and 1GB of RAM. There's no possible way Apple makes this cheap phone and fixes the iPhone's problem, and apple would probably screw around with the specs, (i.e no 3G). But hell, it would be sweet anyway.
I may want other phones however. Many people don't wanna leave their carrier, some people don't wanna have the same phone as everyone else, and some people just like the email features of a blackberry, the openness of an android phone, or the corporate features of WinMo.

[sting7k]

Just don't see it happening. Since when does Apple do "cheap"?

The only possible way it will happen is if sales of the iPhone really tank and Apple sees low cost phones from other manufacturers flying off the shelves.

A more reasonable option would be to change up the pricing on the iPhone 3G and introduce a new model iPhone. The iPhone 3G would be 8GB only, a limited cheaper data plan, cost $99, and maybe even be offered on pre-paid plans. The new iPhone model would follow the plans that are already out, unlimited data, higher price, and all that jive.

[renGek]

a stripped down $99 iphone is just a crappy phone. Lots of phones out there for less than $99. But I do understand the incessant need to have a apple branded product. But beyond that why even bother with a $99 iPhone?

[chrisx1]

I don't care if they release a $99 iPhone if the monthly plan is still so pricey. The cost of the phone hardware isn't a big deal now even at $199, the monthly fees are.

[jean.luc.picard]

It's wonderful to see that people are not falling for this kind of baseless speculation and market manipulation any more.
Apple will upgrade its current iPhone in early summer (it's the iPhone refresh cycle) but will not cannibalize it's own market with a stupid product. If they deliver a new iPhone it will be considerable better than the current model but will debut at the current price. The current model will then either be replaced with the new model or will be sold somewhat more cheaply. Apple will not bring out a product less capable than the current one.

[worm4apple]

Why does everyone think it has to be an iphone nano? How about a nano phone? Add on simple voice and text phone capabilities to a nano. That way Apple doesn't cut into it's smart phone market but instead opens up an outlet for those users who can't afford the $200 phone and $1500/2 year plan. I see this more for developing countries and kids and tweens whose parents can't afford the iphone. You still get the cool factor for the kids for a fraction of the cost. I think this would be a smart move.

[jgvillan]

Oh, why the debates. Apple would what ever it likes to do...no matter what the public opinions would say. If they wish to sell $99 entry-iPhones....let them. They've sold iPhones for what....two years? And no matter how crappy the service seems to be, or what flaws came out from them, Apple still came out on top and most people still think that Apple is GOD. Personally, I wouldn't mind purchasing an entry-level iPhone and see what all the rave is about.

Also, I do agree with those who mentioned today's economy. For those who can't afford, or find the justification to dish out for the $300 iPhone, why not the $100 variety. That would have Apple more accessible to users and be exposed to iTunes and the iPhone App Store. More bank for Apple. :-)

[xcal78]

Would this sum up your opinion of Apple users?

"an instance of great veneration of a person, ideal, or thing, esp. as manifested by a body of admirers"

[AndrewRich]

The day Apple releases a CDMA iPhone with a hard keyboard is the day I'll buy one. I'd also go for a CDMA Nokia N97 if that comes first. Until then I'm sticking with (ugh) Windows Mobile, which is still better than (ugh ugh) Palm.

[tcr071]

You can thank Verizon for that. If the company wasn't run by a bunch of tightwad morons the iPhone would currently be on a CDMA network.

[abcd9009]

I think I can safely say THAT WILL NEVER HAPPEN. Welcome to the technology which the entire world embraces, except for Sprint and Verizon... that's right I am talking about GSM network.
Even the Storm which is on Verizon network HAS TO SUPPORT GSM in order for it to work outside US.

Please feel free to stay with the outdated technology while the rest of the world embraces on new touchscreen smart phones.

[DrtyDogg]

@abcd9009: Outdated technology? rest of the world? Check your facts and try again.

[Waam]

Since when did reporting on rumors become jounalism? Is this site turning into the paparazzi?

[nickh2]

This speculation about $99 iPhones at MacWorld 09 was being thrown around by cnet last December.

Guess what?

It didn't happen.

What makes you think it will happen this time?

I guess we will see the same article again sometime in mid April, as the cnet refresh cycle is somewhat shorter than those in place at Apple.