Could Cheaper iPhones Improve Apple Inc. (AAPL)’s Profit Margins?

Bloomberg’s unnamed source claims that these used iPhones will only be sold in emerging markets, giving it the double benefit of encouraging sales both in the U.S. (where new products will be cheaper due to the credit earned from an old phone trade-in) and in emerging markets (where used iPhones can be offered at a lower price, making them more accessible).

Accounting for approximately 53% of revenue, a boost in sales of Apple’s iPhone segment would almost undoubtedly have positive impacts on the company’s overall gross profit margin. Similar to Huberty’s scenario outlined above, even if older model iPhones with lower prices grow as a percentage of sales, the segment’s overall profit margin will likely still be significantly higher than the company average. Therefore, this scenario is likely to have a positive impact on the company’s overall gross profit margin, too.

In fact, Huberty has predicted that Apple Inc. (NASDAQ:AAPL)’s recent price cuts on the iPhone 4 in some regions may actually boost company’s overall gross margin this quarter by 0.3%. So this trade-in program could very well accelerate this trend in the future.

Google’s success is Apple’s opportunity
How, you ask? Google Inc (NASDAQ:GOOG)‘s Android mobile operating system captured about 75% of the global smartphone market in the first quarter, up from 59.1% in the year-ago quarter, according to IDC. Meanwhile, Apple’s share declined from 23% to 17.3% in the same period. How did Android make such an impact so quickly? One obvious reason is the proliferation of low-cost smartphones running the Android OS. Apple Inc. (NASDAQ:AAPL) investors could look at this in a negative light, or they could see Android’s success as an opportunity: An opportunity for Apple to sell lower-cost iPhones and subsequently boost sales of its most profitable business segment. And as a nice bonus, a negative trend in the company’s gross profit margin may stabilize or even improve.

The article Could Cheaper iPhones Improve Apple’s Profit Margins? originally appeared on Fool.com.

Fool contributor Daniel Sparks has no position in any stocks mentioned. The Motley Fool recommends Apple and Google Inc (NASDAQ:GOOG). The Motley Fool owns shares of Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG).

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