The downside of being king of the world is that sometimes it’s difficult to get a read on the day-to-day lives of the peasants. A disconnect between what the marketplace is demanding and what leading product suppliers are delivering can be a costly one.
Whether it’s a disconnect or CEO Tim Cook has simply said no, Apple Inc. (NASDAQ:AAPL) has repeatedly pushed aside the notion of serving the low-end global smartphone market. Until recently, who could argue? Though the opportunity for low-cost phones has always been huge, largely because it’s such an underappreciated market, Apple Inc. (NASDAQ:AAPL)’s cranked out financial results that make it easy to gloss over potential areas of growth. Apple’s share-price drop into the mid-$400 range has changed all that.
Apple Inc. (NASDAQ:AAPL)’s upsides are also downsides
According to research firm Kantar, Apple owns about 51% of the domestic smartphone market, an incredible feat in and of itself. And globally all those iPhones generate a majority of Apple’s total profit, which is also amazing, especially for a company that generated over $13 billion in net income last quarter.
The problem with both of those figures — 51% market share and the large percentage of profits from its iPhones — is: Where will future growth come from? Rumors are that an iPhone 5S and an iPhone 6 are slated to be released this year, either of which is likely to spark sales but not the kind of growth a company of Apple Inc. (NASDAQ:AAPL)’s ilk requires.
Sure, Nokia Corporation (ADR) (NYSE:NOK) can announce 4.4 million Lumia units sold during its most recent quarter and receive nothing but positive feedback from shareholders and analysts alike. But the Lumia is new to market, and Nokia is battling for survival in an ever-crowded field, so strong sales of Lumia feels like a godsend, though the numbers wouldn’t make a dent in Apple Inc. (NASDAQ:AAPL)’s bottom line.
Though total sales numbers haven’t been released for Google Inc (NASDAQ:GOOG)‘s Nexus line of smartphones, indications are that its making a dent. Of course, Google’s Android OS runs more phones than any other system in the world, by a wide margin. But it’s Nokia’s mobile phone sales volume during Q4 that Apple should note. Of the 86 million total units sold, 9.3 million were Nokia’s newer, low- to mid-market Asha phones. What’s that have to do with iFans?
The opportunity
As noted in an article a couple of weeks ago, it’s apparent the high-end smartphone market, particularly in developed countries, is becoming saturated. However, lower-cost mobile phone alternatives are expected to see a nearly threefold increase in global sales between now and 2016, according to IHS. And here’s some additional tidbits Apple should chew on relating to the opportunity in low-end phones.
As per a recent report for calendar year 2012, there are now 4.3 billion individual, mobile phone users on the planet — 4.3 billion. Of those users, only 1.3 billion own smartphones. That, it seems, is fodder for Apple fans who despise the idea of “sinking” to the low-end phone market. With all those individual users, a total of 3 billion of them, not using smartphones, there are literally billions just waiting to get an iPhone, right? Unfortunately, no.
Mobile phone users in emerging markets, many of whom do not enjoy the benefit of subsidies, simply can’t afford $600 or more for a smartphone. Are some of the 3 billion mobile phone users a target for Apple’s iPhones? Of course, but it’s more likely they’ll be served by the likes of Nokia and its low-end phones or global sales leader Samsung, with its laundry list of phone alternatives for emerging markets.
Apple needs to develop a phone in the $200 to $300 range, simple as that. Quality is always an issue, and never more so than with Apple and its products. But the numbers make it pretty clear: Globally, users are willing to give up features for cost, and billions are doing it right now. As it stands, Apple doesn’t have a solution for the majority of those mobile phone users — and that needs to change.
The article More Proof Apple Needs a Low-End Phone originally appeared on Fool.com and is written by Tim Brugger.
Fool contributor Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple and Google.
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