Apple Inc. (AAPL), COMSCORE, Inc. (SCOR), Gartner Inc (IT) & The Changing Smartphone Market

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Maybe the iPhone 5C won’t be so bad for margins, at least not compared with the alternative case, which would be a growing proportion of older iPhone models in the overall sales mix.

Assuming a price tag $200 or $300 below the high-end version, the iPhone 5C could be much more attractive to consumers than the older iPhone models. It would still have the Apple brand, it would be at a similar price to competing alternatives, and it would be a new product.

Growing sales volumes tend have positive effects on profit margins, so a combination of lower manufacturing costs for the iPhone 5C and growing volumes could partially offset margin pressure due to lower prices.

Even if margins are going to be lower in the mid term, Apple Inc. (NASDAQ:AAPL) is playing this game for the long term and focusing on growth over years to come. The company is well known for its halo effect, meaning that consumers who buy Apple products tend to stay within the Apple ecosystem when it comes to their next purchase, so building a large customer base in emerging markets is far more important than margins over the next few quarters.

Different iPod models have their own margin implications, and the iPad Mini has been a big success for the company even if it has lower margins than bigger iPad models. There is no reason to believe the company shouldn’t follow the same strategy with its iPhone line of products and provide different options to fit different consumers.

Foolish bottom line
Profit margins are already falling at Apple Inc. (NASDAQ:AAPL) as consumers choose previous iPhone versions over the latest iPhone 5. Maybe the iPhone 5C, with its lower costs and higher growth potential, won’t be so detrimental to margins in comparison with the alternative scenario, which would be increased sales from older iPhone models in the overall sales mix.

Besides, even if margins will be falling in the middle term, gaining market share in emerging markets is enormously important in terms of long-term growth prospects. Apple is moving in the right direction with the iPhone 5C.

The article A Cheaper iPhone Is Good News for Apple Investors originally appeared on Fool.com and is written by Andrés Cardenal.

Andrés Cardenal owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple.

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