Apple Inc. (AAPL) & Research In Motion Ltd (BBRY): Where Do They Stand?

Page 1 of 2

Apple Inc. (NASDAQ:AAPL)Following the launch of the iPhone in 2007, Apple Inc. (NASDAQ:AAPL) quickly grew to be the dominant player in the high-end smartphone industry. In doing so, it decimated the market share of Research In Motion Ltd (NASDAQ:BBRY) (then called Research In Motion), sending the company into a tailspin.

Up until 2012, Apple Inc. (NASDAQ:AAPL) seemed to be on a path to smartphone dominance, at least in the high end of the market. However, growth has slowed dramatically in the past year. While growth rates have always been “lumpy” because of timing issues, there has been a clear downward trend in iPhone sales growth recently.

Source: Apple Earnings Releases, http://investor.apple.com/results.cfm.

There has been much talk in the market that Apple Inc. (NASDAQ:AAPL) will offer a cheaper iPhone to appeal to customers who can’t afford a $450 product like the iPhone 4. However, this potential move raises a legitimate concern about cannibalization of higher-priced, high margin iPhones. To solve this dilemma, Apple Inc. (NASDAQ:AAPL) should (surprisingly enough!) consider following Research In Motion Ltd (NASDAQ:BBRY)’s lead by releasing a mid-range smartphone, but only in selected markets.

Apple’s problem
Apple’s problem is fairly simple. The iPhone 5 has a starting price of $649 (in the U.S.), and even the three-year-old iPhone 4 retails for $449 if you aren’t getting a carrier subsidy. This premium pricing has allowed Apple to maintain stellar margins for the iPhone. Horace Dediu of Asymco estimates the iPhone’s gross margin at 48% as of last quarter. That’s less than the peak of nearly 60% last year — before the introduction of a new form factor with the iPhone 5 — but still well above the gross margins of Apple Inc. (NASDAQ:AAPL)’s other product lines.

Ideally, Apple would like to expand the market for the iPhone by offering a cheaper version that could compete in the “mid-range” smartphone segment. Apple will never be able to deliver a high quality product that can compete on price with the $99 Android phones that are common in developing countries. However, a price point as low as $300 seems feasible.

That said, if Apple Inc. (NASDAQ:AAPL) delivers a high-quality smartphone for $300 unsubsidized, it risks cannibalizing sales of its high-end phones. Even in the U.S., many people would consider trading down to a cheaper iPhone, as evidenced by the continued strong sales of the iPhone 4 and iPhone 4S.

If this cheaper phone had a gross margin of just 20% (implying a profit per device $200 to $250 lower than the average iPhone sold today), cannibalization of high-end iPhones could more than offset the benefit of restarting unit sales growth. Apple therefore needs to find a formula that would allow it to introduce a cheaper iPhone and grow its global market share while minimizing cannibalization of high-end iPhone sales.

BlackBerry’s plan
That’s where following Research In Motion Ltd (NASDAQ:BBRY)’s lead could prove useful. BlackBerry recently unveiled its first lower-priced smartphone running the new BB10 OS. The Q5, announced at this week’s BlackBerry Live conference, will be very similar to BlackBerry’s Q10 high-end smartphone, but it will use some cheaper components.

However, BlackBerry isn’t planning a global rollout for the Q5 (at least not yet). According to the company’s press release, “The new BlackBerry Q5 smartphone will be available in selected markets in Europe, the Middle East, Africa, Asia (including the Asia-Pacific region), and Latin America.”

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!