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Can Apple Inc. (NASDAQ:AAPL) Sustain its $600-plus iPhone Price?

S

SRLoner

macrumors newbie
Original poster
Apr 22, 2012
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The question is whether the phone companies can or want to keep that up much longer. The No. 3 carrier, Sprint Nextel Corp., who just began offering the new iPhone in its phone lineup is struggling and a bankruptcy filing isn’t out of the question. Investors will wait to hear if CEO Tim Cook receives questions on whether Apple would cut the iPhone’s price or will something change to make phone companies happy.

via: http://www.valuewalk.com/2012/04/apple-inc-aapl-earnings-preview/

What do you guys think, can it sustain?
 
Yes. Apple could price the iPhone at whatever they want, and still have people line up to get them. The iPhone isn't killing Sprint. At least, not alone it isn't.
 
god, you sound as though the iphone is overpriced compared to other smartphones in its class. when you consider other top smartphones like the samsung galaxy nexus (retail price $649.99 on verizon, $549.99 on sprint) or the motorola droid razr/razr maxx ($599.99/$649.99), you'll see that all the high end phones have comparable retail prices. apple isn't alone there, so why are you singling them out?
 
As long as demand stays strong - and it has - there will be no price cut...
 
siurpeeman said:
god, you sound as though the iphone is overpriced compared to other smartphones in its class. when you consider other top smartphones like the samsung galaxy nexus (retail price $649.99 on verizon, $549.99 on sprint) or the motorola droid razr/razr maxx ($599.99/$649.99), you'll see that all the high end phones have comparable retail prices. apple isn't alone there, so why are you singling them out?
Click to expand...

Yeah, but Verizon's not paying anywhere close to that to Motorola. They are paying Apple around $650 per iPhone.
 
Ecoh said:
I think the problem is the iPhone cost the carrier much more than the other smart phones. Carriers have to pay Apple almost full price for the iPhone and then subsidize the purchase much more for their customers. They make less profit on the sale of an iPhone and try to make it up on the contracts.

http://money.cnn.com/2012/02/08/technology/iphone_carrier_subsidy/index.htm
Click to expand...

Neither you (or that article) are taking into account what siurpeeman has already stated in this thread:

Most high end smartphones cost just as much if not more than the iPhone does.
 
SRLoner said:
The No. 3 carrier, Sprint Nextel Corp., who just began offering the new iPhone in its phone lineup is struggling and a bankruptcy filing isn’t out of the question.
Click to expand...
What does the former have to do with the latter?
 
Judging from Sprint CEO's remarks last year when the iPhone was launched on Sprint,

iPhone costs Sprint "40% more in subisdy than any other phone they carry"

That statement comes from the CEO's mouth. What does this mean?

It means we are pretty much ignore MSRP Android pricing (for carriers who purchase Android/Windows Phones/Blackberries etc in bulk orders).

I'm sure Apple gives around 5-10% break in MSRP to carriers in bulk. So carriers don't pay the full $650. But the price carriers pay for the iPhone is probably very close to the $600 price mark when orders are placed in bulk. Apple gave the US Military a 10% discount for potential iPad orders recently. So giving carriers a slight discount for bulk orders is pretty much assumed.

So lets say the iPhone cost the carriers about $600 to obtain. They sell it on contract to a customer for $200. That's a $400 subsidy.

Now let's get over to the Android pricing. Again forget MSRP because carriers don't pay MSRP for bulk orders. If iPhone subsidiy is 40% more than any other phone, that pretty much means Sprint, Verizon, ATT obtain even the high end Android phones for roughly $400-450.

That's why you see carriers try to push the non iPhone devices for $199 on contract. Their subidies are much less than the $400 they give to Apple. And that's why you see third party resellers like wirefly, let's talk, amazon.com offer Android phones for even cheaper. Of course, all those third parties require a mandatory data plan for at least 181 days so you just can't sell the phone and use a dumbphone and expect to drop the data plan to save money.

So I believe their a 2 seperate issues going on here.

1. Issue number 1 is Apple has the carriers by the balls. Customers want the iPhone. The iPhone has been the best selling smartphone on anyone of the 3 carriers the minute it was introduced. iPhone 4/4S still account for over 50% of all Verizon smartphones. Similar stats on ATT and Sprint.

Which carrier wants to blink to start reducing subsidies for the iPhone. Verizon's tried to raised their high end LTE phones to $299 on contract to further reduce subsidies on contract. People will claim LTE chips cost much more. But lets get real. The lastest report say the LTE chips don't add more than $20-30 to a phone. So lowering the subsidy by $100 (selling LTE high end phones for $299) is a pure profit move by Verizon.

2. And I think this is the real issue here. For primary lines, I see a $400 subsidy for the iPhone and that makes sense. I even see the carriers practically giving iPhones away for free on contract for primary lines or single lines because those lines generate more profit.

It's the secondary lines all the carriers offer that kills their profit margin.

Question for European/Asian Macrumor guests.

Do your carriers offer family plans with the same subsidies as the primary lines for iPhones? I'd like to know that answer. Does the secondary lines iPhone cost the same as the primary line?
 
I'm surprised that Verizon took the iPhone, especially given their 4G LTE plans. They could have continued on, and maybe lost a few customers, but they would have been fine without the iPhone. The other carriers don't have "the network" (IMHO, AT&T's network is better, but undeniably Verizon is in the same league with AT&T, and Verizon's network is legendary, both because of the actual network, and their advertising), so they don't have much choice in carrying the iPhone.
 
BiggAW said:
I'm surprised that Verizon took the iPhone, especially given their 4G LTE plans. They could have continued on, and maybe lost a few customers, but they would have been fine without the iPhone. The other carriers don't have "the network" (IMHO, AT&T's network is better, but undeniably Verizon is in the same league with AT&T, and Verizon's network is legendary, both because of the actual network, and their advertising), so they don't have much choice in carrying the iPhone.
Click to expand...

Verizon had to take the iPhone. They would be at a strategic disadvantage at the higher paying smartphone market by not offering the iPhone as a choice. Judging by iPhone sales at Verizon. The iPhone has been by far the most popular device on the network. By far and it not even close. iPhone sales accounted for more than 50% of also smartphones alone last quarter and over 70% of all smartphones in q4 2011.

Verizon is like the fat kid who wants it all. Higher subscriber monthly bills plus profit margin. The iPhone attracted customers afraid of android and brought a smartphone for the first time on verizon network. Those people went from paying 0 in data to $30 extra. But Verizon has to deal with those subsidies the iPhone demands.

Some people feel android phones are too complicated. And blackberries are just not cool anymore. Windows phone isn't a big present presence yet on the market so Verizon isn't promoting it yet.
 
Ecoh said:
I think the problem is the iPhone cost the carrier much more than the other smart phones. Carriers have to pay Apple almost full price for the iPhone and then subsidize the purchase much more for their customers. They make less profit on the sale of an iPhone and try to make it up on the contracts.

http://money.cnn.com/2012/02/08/technology/iphone_carrier_subsidy/index.htm
Click to expand...

So other manufacturers are taking lower profit margin to increase market share? Or they're just fine with giving carriers more control? Is it the carriers we have to blame for a bazillion handsets from SamsungHTCMotorola?
 
Comeagain? said:
Yes. Apple could price the iPhone at whatever they want, and still have people line up to get them.
Click to expand...

Not if the phone isn't subsidized. I would guess that Apple would lose at least 50 percent of it's customer base if the iPhone weren't subsidized.

Heck, a lot of iPhone users really can't afford the subsidized iPhone along with the contract.
 
I am sorry but who cares about the carriers. So they pay $650 for the iPhone 4S 16GB version then charge people $200 with a two year contract meaning that they lose $450 upfront but over 2 years they will make a profit of $1590 (85*24-450) off of a customer. They charge ridiculous rates for data, texting, and minutes.

Why should Apple sell their phones to carriers at a lower cost so that the carriers can make more profit off of their customers?

$650 for the latest launch product is not overpriced. Especially with the support that Apple offers (Their LEGIT one year warranty with over 200 Apple Stores around the country, with if I am not mistaken 24/7 Technical support and an amazing return policy)

If you think something is too much money then don't buy it. A smart phone is not a necessity, especially an iPhone. Apple does not tailor their goods to people who can't afford their products. They offer premium quality for a premium price.

You get what you pay for.

End of Story

----------
andyx3x said:
Not if the phone isn't subsidized. I would guess that Apple would lose at least 50 percent of it's customer base if the iPhone weren't subsidized.

Heck, a lot of iPhone users really can't afford the subsidized iPhone along with the contract.
Click to expand...

All phone manufacturers would lose a lot of customers if phones were not subsidized. Even dumb phones can cost around $100 +


Also I don't buy that people can't afford a subsidized iPhone.
They can get the iPhone 3GS from AT&T for free with a two year contract. Or they can just pay $100 for an iPhone 4.

And if $200 is a lot of money for someone to the point where it may dictate whether they can "afford" a phone then they have no idea what they are getting themselves into. It cost minimum $70-75 to own a smart phone (with a two contract) every month. By getting a phone subsidize you agree to pay a minimum of basic minutes with basic data plan. If you can't afford that then you're going to screw over with credit and trouble.
 
All phone manufacturers would lose a lot of customers if phones were not subsidized. Even dumb phones can cost around $100 +


Also I don't buy that people can't afford a subsidized iPhone.
They can get the iPhone 3GS from AT&T for free with a two year contract. Or they can just pay $100 for an iPhone 4.

And if $200 is a lot of money for someone to the point where it may dictate whether they can "afford" a phone then they have no idea what they are getting themselves into. It cost minimum $70-75 to own a smart phone (with a two contract) every month. By getting a phone subsidize you agree to pay a minimum of basic minutes with basic data plan. If you can't afford that then you're going to screw over with credit and trouble.[/QUOTE]

Man. You just do not understand the USA mentality when it comes to buying cell phones. For the longest time they have been thought a cell phone should be free or close to free on contract. That's the sad fact. It's very hard to explain to Americans the subsidy game the carriers play. The carriers have had complete control over almost all phones prior to the iPhone. They all want to put their crapware on those phones.

That's why Nokia even at their height had a hard time breaking into the USA market with their high end N series and even this mid tier E series phones.

The USA system is a different beast. In Europe from what I learned its mostly single lines plans. What's killing carriers is the family plan subsidies. Carriers just do not know how to price the subsidies for secondary lines.
 
Well I am American and I noticed that since I was 17 years old. When the Motorola RAZR was a big hit I got one on Verizon. I don't remember the exact model but it was silver and was available on Verizon in early 2007. I compared it to my friend's RAZR on Tmobile and his phone was simply better.

Apple changed all that and gave carriers the middle finger and that's what I love about Apple. They don't take crap from anyone. Their motto is if you don't agree with them or want to pay a premium pice then GTFO and I like that. Because it keeps quality high.
 
taedouni said:
Well I am American and I noticed that since I was 17 years old. When the Motorola RAZR was a big hit I got one on Verizon. I don't remember the exact model but it was silver and was available on Verizon in early 2007. I compared it to my friend's RAZR on Tmobile and his phone was simply better.

Apple changed all that and gave carriers the middle finger and that's what I love about Apple. They don't take crap from anyone. Their motto is if you don't agree with them or want to pay a premium pice then GTFO and I like that. Because it keeps quality high.
Click to expand...

Yep, this is the main reason I'm on att today - Verizon crippled their phones way too much back in the day. AT&T/cingular phones were generally not very crippled... And it was generally easier to hack GSM phones than their CDMA equivalents. Now that the iPhone essentially put an end to those kind of practices, I'm willing to go back to Verizon. At least once their LTE network is nationwide
 
Galaxy nexus is 299 on contract for a 16GB device iPhone is 199 its a higher subsidy then android devices.Its the subsidies that kill
 
aneftp said:
Verizon is like the fat kid who wants it all. Higher subscriber monthly bills plus profit margin. The iPhone attracted customers afraid of android and brought a smartphone for the first time on verizon network. Those people went from paying 0 in data to $30 extra. But Verizon has to deal with those subsidies the iPhone demands.
Click to expand...

The iPhone didn't get them new subs, and it did cannibalize DROID sales. However, it did get their existing subs to upgrade to smartphones a lot faster, and keep pace with AT&T's smartphone adoption rate. They wanted the increase in ARPU, and they had to make a deal with the devil to get it. Why iPhones sell on Verizon, I am still baffled, I know I strongly recommend 4G LTE DROIDs to my friends, even though I am an iPhone user, and love my iPhone. The iPhone just isn't worth being stuck on EVDO. I'm lucky on AT&T to be able to be on the fastest network in my area, and still get the iPhone.

aneftp said:
All phone manufacturers would lose a lot of customers if phones were not subsidized. Even dumb phones can cost around $100 +
Click to expand...

There are a few markets, like Greece and Portugal where there aren't subsidy options, and the market responded very differently there, by selling small, less powerful Android devices. There, Android has 80-90% of the market, as iPhones cost $600-$700. Surely, Apple doesn't want to sell iPhones in those markets unsubsidized for $250, as that would undermine their whole world market for them, so they take a loss of market in one place to keep profits in others.
 
Answer to the original question: Simple, if the iPhone 5 is spectacular and not just an upgrade then Apple will rule.
Its sad to say that this companies fate depends on 1 product so much.
 
bushman4 said:
Answer to the original question: Simple, if the iPhone 5 is spectacular and not just an upgrade then Apple will rule.
Its sad to say that this companies fate depends on 1 product so much.
Click to expand...

Nonsense.

The iPhone 4S was not spectacular, and they are still setting record sales numbers. The next phone will sell just as well, unless Apple tries to trick it up....
 
BiggAW said:
The iPhone didn't get them new subs, and it did cannibalize DROID sales. However, it did get their existing subs to upgrade to smartphones a lot faster, and keep pace with AT&T's smartphone adoption rate. They wanted the increase in ARPU, and they had to make a deal with the devil to get it. Why iPhones sell on Verizon, I am still baffled, I know I strongly recommend 4G LTE DROIDs to my friends, even though I am an iPhone user, and love my iPhone. The iPhone just isn't worth being stuck on EVDO. I'm lucky on AT&T to be able to be on the fastest network in my area, and still get the iPhone.
Click to expand...

Do you have access to Verizon's books? If not, then you cannot definitively say that Verizon didn't gain any new subscribers out of the iPhone deal. Nor can you definitively say whether or not it was a good business decision.

Let's say your assumptions are right - why should their decision be baffling? A revenue increase of $30+/line for everyone who switched to the iPhone isn't chump change. That revenue increase will more than pay for the subsidies over the term of the contract. They also prevent those users from jumping ship to AT&T. It would've been a terrible business decision not to carry the iPhone.

It was a win-win for both apple and verizon.nApple gained sales from those who were not willing to jump ship; Verizon gained revenue from those who switched, and they gained subscribers (people who jumped ship from AT&T to Verizon.). Many people did not want to sacrifice their coverage and quality of service to get the iPhone - I think during the launch they mentioned that Apple was constantly flooded with calls that were something to the effect of "When is Verizon getting the iPhone? I'd buy one immediately if they get it". And until recently, AT&Ts 3G coverage was pathetic compared to Verizon's. I'd much rather be on EVDO than GPRS/EDGE. I had no 3G where I live until a little after the iPhone 4 launched.
 
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