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Why Price Cuts are Actually a Good Thing for Apple Inc. (AAPL)

Don’t miss the bigger picture

It’s true that lower-priced items will hurt Apple’s margins.  What many seem to be missing, however, is that lower-priced items will also result in higher overall sales.  There are millions of consumers who haven’t purchased Apple’s products because they couldn’t afford Apple’s premium prices.

To combat this, Apple is rumored to be releasing a less expensive iPhone this year in China.  This announcement could pave the way for the company’s long-coveted partnership with China Mobile.  China Mobile is a $220 billion giant based in Hong Kong, and provides telecommunications services primarily in Mainland China. The company serves more than 700 million customers, making it the largest telecom carrier in the world.  Unleashing China Mobile’s customer base to Apple would be a huge catalyst.  Lower-priced phones will be a great way to reach customers in under-developed emerging economies such as China.

To say that Apple has its investors frustrated is an understatement.  The company is currently in the throes of a painful decline from its all-time highs reached last fall.  Not too long ago, financial pundits lauded the company’s vision and innovative magic, and Wall Street analysts routinely one-upped each other with higher and higher price targets.

Fast forward to today, and the company’s best days are supposedly behind it, all because of lower margins.  Apple appears to be willing to exchange a few points of gross margin in exchange for millions more loyal customers that lower-priced devices and a partnership with China Mobile can provide.  Profits are what matter, and Apple’s profits will keep rising for years to come.  Shareholders have 700 million reasons to be optimistic about the company’s future.

The article Why Price Cuts are Actually a Good Thing for Apple originally appeared on Fool.com and is written by Robert Ciura.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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