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Apple execs: Cheap iPhone only an option as a “category-killer”

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Apple (s aapl) CTO Tim Cook and CFO Peter Oppenheimer sat down with RBC Capital Markets (s ry) analyst Mike Abramsky on Wednesday (via AppleInsider), and according to the analyst, the executives were keen to point out that Apple’s key motivator for getting into the lower-end smartphone market would be to provide a “category-killer” experience.

Many rumors lately have suggested that Apple will be introducing a lower cost iPhone when it refreshes the line in fall. People point to the rise of prepaid contracts as a good reason for Apple to go cheaper, but the executives, speaking to Abramsky, suggested that the potential advantage in terms of new customers wouldn’t outweigh its commitment to innovation and strong design. Considering how far ahead of the competition Apple is in terms of smartphone profits, and the resulting pile of cash in the company coffers, it can definitely afford to watch and wait for quite a while longer.

Of course, just because Apple’s primary concern when considering a lower-end iPhone is quality, doesn’t mean we won’t see one. Recently, Cupertino has been developing quite the knack for offering innovative devices at prices that undercut their competitors. Consider the iPad, which for a long time was the cheapest option among a see of also-rans. HP (s hpq) recently discounted their TouchPad to the point where it actually is priced below the iPad, but I doubt they manage to enjoy anywhere near the same profit margins on each device sold. The MacBook Air, too, is a category leader in terms of price, with competitors seemingly unable to match it following Intel’s (s intc) similar “ultrabook” specifications. Good supply chain management is part of this, and that could also help Apple deliver an innovative low-cost smartphone device that outstrips cheaper Android and other devices.

But in speaking with Abramsky, the execs conveyed that Apple doesn’t need to compete on pricing with Android because of its “sustained advantages,” which include tight hardware/software integration and software library curation. Abramsky said that these strengths should prove helpful in the expected onslaught of low-price Android hardware, which will pose more of a threat to other smartphone platform competitors.

It shouldn’t come as a surprise that Apple intends to enter a market only if it can deliver the best experience in said market. So far, that’s been the lynchpin of its reputation. But it does seem to me from Abramsky’s research note that Apple isn’t feeling any remarkable pressure to go cheap, so at this point, rumors of an imminent low-cost device are likely premature. On the other hand, if we do see a cheap iPhone this year, one thing is clear: It would have to live up to Apple’s exacting standards, which should make the heated mobile race even hotter.

5 Responses to “Apple execs: Cheap iPhone only an option as a “category-killer””

  1. wondercomp

    If Apple does make a cheap iPhone, and it goes prepaid, I’d expect to see it on Verizon’s network. The reason for this is because the prepaid plans on Verizon are slightly more expensive than their post paid counterparts. If Apple does it this way, It would push more consumers to the higher end iPhone, because of the monthly plan pricing.

    There are two other things to consider. Apple has the power to negotiate special monthly plan pricing for their devices.(iPad 3g, anyone?) Or Apple could take advantage of an already well established prepaid brand with benefits, such as Virgin Mobile, which offers unlimited data for a price significantly cheaper than it’s post paid parent company. Those are my thoughts, but I’d say if it does happen, (and it might not happen this year) apple would go with AT&T and Verizon’s currently established plans, if only to push customers to a higher end device.