Here’s why an affordable iPhone 5G is the only good choice for Apple

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It’s an understatement to call Apple largely unknown. Yesterday, despite a 4.8% drop in US GDP, Apple somehow exceeded expectations of analysts’ consensus by about 8%, miraculously growth its quarterly revenues year on year despite a global pandemic and the almost complete closure of its physical stores. None of the analysts – professional paid observers of Apple – had expected an increase, proving that the “Apple is doomed” predictions became ridiculous during its trillion-dollar era. The company certainly still makes mistakes and has its bad times, but it has a lot of room (and money) to correct its mistakes.

5G cell technology – one of the key transformative technologies of this decade – is a rare example of Apple making an obvious mistake. While the main American and international operators rushed for the first 5G towers to be operational at the end of 2018, Apple planned its first 5G iPhones for the end of 2019. But when its main supplier of mobile phones Intel stopped producing 5G modems, Apple was forced to make a last minute agreement with the best manufacturer of 5G chips Qualcomm, and precipitate a set of iPhones powered by Snapdragon modem thanks to the development of a version in late 2020.

Because Apple’s financial performance often defies traditional business logic, I’m not going to say that it has no choice in pricing its next 5G phones, or that it still couldn’t make a lot of money. money by simply courting buyers of ultra-premium devices. It could certainly do so, but at the cost of new market shares in key territories. But since the company’s iPhone business accounts for half of its revenues, maintaining solid revenues from year to year has forced Apple to make complex choices that take into account multiple customer bases, geographies and currencies.

With that in mind, I’m going to explain why Apple probably won’t limit 5G to its high-end devices this year, but will branch out into new models as “standard 5G” and “full speed 5G” alternatives. I will also explain why I give some credit to rumors that the company will aggressively price new mid-range 5G models – at least in some jurisdictions. Apple may be an “affordable luxury” brand, but now is not the time to try to get the last nickel from budget-conscious customers, so its smartest strategy would be to aggressively cover segments medium and high 5G market in full growth this year.

What we think we know about iPhone 12 models

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For months, supply chain rumors have suggested that Apple is planning successor models for the iPhone 11, iPhone 11 Pro, and iPhone 11 Max, mixing screen sizes and materials. body to make the “good, better, better” alternatives clearer. The latest leaks suggest that the iPhone 11 at $ 699 will be replaced by a smaller iPhone 12 (5.4 inch screen) at $ 649 and a 6.1 inch iPhone 12 Plus at $ 749, both in aluminum and with two rear cameras. Apple is also reportedly working on a $ 12 ($ 6.1) iPhone 12 Pro and $ 699 iPhone 12 Pro Max with stainless steel bodies, an additional 2X camera and a Lidar scanner.

While the four models would have “5G” – compared to two originally planned – the aluminum models should only work on low and medium frequencies (below 6 GHz), generally offering download speeds below 1 Gigabit per second, while those in steel will also include a high band support (millimeter waves), which can already reach speeds of 2 Gigabit per second. This would be perfectly fine in foreign countries where 5G millimeter wave is barely available, if at all, but could deprive US customers of Verizon and AT&T of an affordable iPhone capable of using their fewer but faster 5G rounds.

5G has experienced a strange deployment

Even believing in the potential of 5G, I will be the first to admit that the technology did not deploy exactly as expected. American and South Korean operators rushed to the very last minute to launch the “first” 5G commercial network, but even by the end of last year nothing had come close to full 5G coverage . The largest American 5G network (T-Mobile) is too often of a 4G caliber, and the second (AT&T) is not much better. Verizon’s 5G network is super fast, but barely available even in some of the smaller cities where it is said to have been launched. Some foreign countries are doing better (see: South Korea and China) with 5G than in the United States; others are a year or more away from deployments.

On the other hand, 5G phones are already available from all major suppliers except Apple. Samsung is currently selling its second full generation of 5G phones and is now the world leader in 5G handset deliveries, ahead of Huawei in China and three small Chinese competitors. Other companies announced 5G phones under $ 400 in January, and Samsung will launch the $ 500 Galaxy A51 this summer.

Virtually all inexpensive 5G phones only include low-speed 5G support, while the more expensive ones have a tendency to include support for all 5G frequencies. Apple has the ability to cover both versions of 5G and looks set to do so in 2020.

5G counts for the vast Chinese clientele

Apple’s quarterly financial data reflects the importance of China to society: it represents $ 10 billion or more in a typical quarter, and is most likely Apple’s second largest customer base after the United States. United. Europe can contribute more quarterly ($ 13-14 billion), but it is in a large group of countries – China is a major player in its own right. Making products that sell well in China will have twice the impact on Apple’s revenue than in Japan.

5G is huge in China right now, thanks to government coordination and the sponsorship of building 5G networks, which are already spread across the vast landmass and are expected to be ubiquitous by the end of the year. Chinese operators already have several million 5G customers and offer an unrivaled diversity of 5G phone options – Huawei is Apple’s biggest high-end challenger, making its own 5G chips, followed by small companies Vivo, Xiaomi and Oppo, who use Qualcomm Modems Snapdragon. Samsung is also an actor in China.

China’s promise for a large and rapid 5G deployment certainly influenced Apple’s late decision to license Qualcomm’s 5G modems so that it can release 5G iPhones this year. Waiting for 5G until 2021 was actually not an option for Apple, and due to the sensitivity of Chinese consumers to price and value, coming up with only unaffordable 5G models would not have been pragmatic. Unless the loss of additional shares in the country is acceptable, it needs iPhone models that will not only exist in the Chinese 5G phone market, but will actually sell many devices this year.

Exchange rates are a known problem and look bad for the dollar

As Apple learned with the iPhone X series, the high price of the iPhone may be limited, but there is black magic in the calculation of this number due to the exchange rates and country-specific taxes. Even on the first day, a device that sells for $ 999 in the United States could be worth the Chinese equivalent of $ 1,270, leaving all but the least price-sensitive customers in the country unaddressed. In addition, the number may increase or decrease over the months. Apple apparently did not appreciate the impact of these figures on Chinese consumers and was forced to cut the prices of the iPhone XS in China to counter weak demand.

Chief Financial Officer Luca Maestri said yesterday that Apple’s call for analysts said the company expects the strength of the dollar to create price challenges. On the one hand, the more expensive an iPhone, the more consumers will face a currency impact. On the other hand, the less expensive the device in a given country, the more Apple’s margin decreases after taking into account taxes and exchange rates.

While the entry-level iPhone 11 sells for 5,499 yuan today – a premium of $ 80 above the price of US $ 699 – the iPhone 11 Pro sells for 8,699 yuan, a premium by $ 233 above the price of US $ 999, and the iPhone 11 Pro Max retails at 9,599 yuan, a premium of $ 260. It is clear that Apple will not try to compete in China with a Huawei Nova 7 5G phone of 2999 yuan ($ 424), but it also cannot afford to offer 5G only in Pro models that are close three times that price.

To get an idea of ​​what the rumored price of the $ 12 iPhone 12 looks like to Chinese customers, consider the 128GB iPhone XR, which Apple sells in China for 5,299 yuan ($ 751). This is currently a premium of $ 102 over US prices. It is entirely possible that Apple will release the phone for $ 649 in the United States and then reduce the Chinese price below 5299 yuan to avoid problems if the dollar becomes stronger.

Apple’s release rate means it has to account for 2021 now

While its main rival Samsung traditionally hosts flagship phone events at the start and end of each year, Apple has an opportunity to get the price of its flagship iPhone – the first week or two of September – and does not change its numbers Americans until the same time the following year. Whether the first 5G iPhones arrive in stores in late September, early November or in between, they will be released in late 2020, and Samsung will be just a few months away from its third generation 5G devices.

The clear trend in prices for 5G devices has “dropped rapidly”. We saw an aggressive shift from ultra-premium to premium price ranges in early 2019, another shift from premium to mid-range later in 2019 and, more recently, in early 2021, there will be 5G phones at affordable, practically all based on Android, and tons of great 5G Android devices in the $ 500 to $ 600 range. Unless Qualcomm drops the ball on the Snapdragon 875 (or the name of the successor to the 865), there should also be no shortage of premium contenders of $ 900 or more.

Apple is unlikely to pursue the truly low-end 5G market in 2021. The release of the second-generation iPhone SE last month is a very clear sign that Apple plans to keep a next-generation 4G phone. as a low-end option for the immediate future – at least two years from April 2020, maybe more. But it is less certain that it will be able to maintain its price of $ 399 after 2021, given the likelihood of aggressive competition in this price range.

One of the main reasons why Apple is so widely misunderstood is the expectation that it will pursue all customers and all market opportunities, coupled with the unfounded belief that it will fail if it does not. With rare exceptions, Apple is not chasing the low end, and it will not sell a device it thinks is less than “great” just to fill a niche. But as the stakes of the tables change for smartphones, Apple should not sit still, even if it apparently can afford to do so. Many of its successes – including services and sales of portable items – depend on the continued strength of its iPhone business. Keeping iPhones as fast and powerful as possible will help it continue to delight consumers, which will ultimately translate into greater strength for its already huge bottom line.

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