EL SEGUNDO, USA: While many observers reacted with disappointment that Apple Inc. didn’t announce a high-end iPhone 5 model on Tuesday—the real letdown was the company’s failure to introduce a true low-end model, causing the company to miss out on the hottest growth opportunity in today’s smartphone business, according to the IHS iSuppli Mobile & Wireless Communications Service.
“Those who were disappointed because they expected Apple to unveil an entirely new iPhone model equipped with 4G technology or other flashy features missed the point. However, those who were disappointed that Apple didn’t roll out a true low-end phone got the point,” observed Francis Sideco, senior principal analyst, wireless communications, for IHS.
“This is because Apple really didn’t need 4G to provide a compelling user experience in the iPhone line—but it did need a low-end model to cash in on the fast-growing demand for inexpensive smartphones. IHS believes that Apple has delivered a strong premium-featured product in the iPhone 4S, but has failed to address the low-end of the market.”
In light of the mixed bag of good and bad news in Apple’s Tuesday announcement, IHS is maintaining its existing forecast for iPhone shipments, seeing no cause to upgrade or downgrade its outlook. Global iPhone shipments will amount to 83.6 million units in 2011, will rise to 112.5 million in 2011 and will expand to 169 million in 2015, according to the IHS iSuppli Design Forecast Tool.Source: IHS iSuppli, USA.
Apple in the second quarter became the world’s leading smartphone vendor.
S is for slight changes
The new iPhone 4S sports several new features designed to enhance its appeal to users. These include a new dual-core A5 processor for faster performance while maintaining battery life, a higher-resolution 8-megapixel camera to take sharper pictures and video, and the availability of 64GB of NAND flash memory to provide greater capacity to store more songs, apps, movies and other content.
Wall Street initially reacted to the iPhone 4S introduction by sending down Apple’s shares by 5 percent, although the stock price recovered most of that decline by the close of the market on Tuesday.
Most observers attributed the Wall Street letdown to the fact that Apple didn’t roll out the iPhone 5, with rumored features including a new form factor, near-field communications (NFC), a larger and higher-resolution display and support for long term evolution (LTE) 4G technology.
However, some of the disappointment also may have come from the fact that Apple didn’t announce a true low-end iPhone model.
IHS defines a low-end smartphone as a smartphone that has an unsubsidized price ranging from $100 to $150.
High expectations for low end
Apple did announce that it now will offer the iPhone 3GS for free, and reduced the iPhone 4 price to $99. However, these deals are available only with two-year wireless service contracts in the United States.
Selling a phone at a subsidized price is different from offering a true low-end smartphone that can be purchased inexpensively without a long-term contract.
“Long-term phone contracts are available with service deals in the United States and other regions where mobile network operators offer subsidies. These types of business models are not as popular in emerging regions where demand is rising the fastest for low-end smartphones,” Sideco observed. “To compete in the low-end smartphone market, a company must offer a product that can be sold cheaply without a subsidy. The iPhone 3GS and iPhone 4 are still expensive if you don’t buy them with a contract.”
Furthermore, the 3GS may become obsolete within two years because it will not be able to run many of the newest apps and operating system features that will become available.
“Any successful smartphone, whether it's a premium or low-end model, must have at least a two-year lifespan,” noted Wayne Lam, senior analyst, wireless communications for IHS. “While the 3GS certainly has had a run longer than that, it’s not clear if the 3GS still will be able to run the latest and greatest software for another two-year period.”
Low end means high growth
It’s important that Apple address the low-end smartphone market because it represents the fastest growth segment of the global cellphone business. Shipments of low-end smart phones are expected to rise to 422 million units in 2015, expanding at a compound annual growth rate (CAGR) of 115.4 percent from just 9 million in 2010, as presented in Figure 2 below. In contrast, the overall smartphone business will rise at a CAGR of only 28.5 percent during the same period.Source: IHS iSuppli, USA.
Other cellphone makers, most notably Samsung, have capitalized on the rapid growth in the low-end smartphone market, offering models that can be sold inexpensively even without a service contract. This helped Samsung to achieve the fastest growth among all smartphone brands in the second quarter of 2011.
“Without a true low-end smartphone offering, Apple has left its flank vulnerable to competition from Samsung and other companies that are supplying inexpensive Android-based handsets,” Sideco said. “In light of this, IHS sees no upside for Apple that would prompt an upward revision of our iPhone shipment forecast at this time.”
Siri deserves serious consideration
On the other hand, IHS iSuppli also sees no cause for an iPhone forecast downgrade, given Apple’s shrewd choices of features for the 4S. One feature that appears to have been overlooked is the inclusion of Siri, an exclusive for the iPhone 4S. Apple describes Siri as an intelligent assistant that can answer questions issued in natural language voice commands.
“Even though Steve Jobs wasn’t on stage at the Tuesday announcement, his presence at the company clearly is still being felt, with Apple once again pioneering the delivery of superior user functionality in the form of Siri,” said Dale Ford, vice president, electronics market intelligence for IHS. “A voice-based command system that responds to natural language is completely in the spirit of a Steve Jobs product by pushing the boundaries of user friendliness. The battle in the smartphone business will not be won by the product with the best display or camera—but by the product that delivers the best user experience. With Siri, Apple has once again shown it has what it takes to maintain its leadership position in the smartphone market.”
Source: IHS iSuppli, USA.