Apple could price the budget iPhone around $350 and not lower: JP Morgan

There’s some more discussion around the budget iPhone and this time it is about the price. While many have been speculating that Apple will launch an iPhone with middling specifications for as little as $200, two analysts from JP Morgan think they have worked out what the actual price could be. They claim that the "budget" iPhone could sport a $350-400 price tag.

According to AllThingsD, the theory put forth by Gokul Hariharan and Mark Moskowitz, analysts from JP Morgan, has very strong historical precedents. They cite the example of the iPad mini, which was priced at $329 at its launch. Many felt that compared to its competition then, the Nexus 7 and the Kindle Fire, the mini was overpriced as the Nexus 7 started at $249 and Amazon’s media consumption tablet cost $199. They felt that this would make the iPad mini a difficult device to sell to the budget conscious. The roaring success of the iPad mini, however, has proved them wrong with almost 12 million of the smaller tablets being sold in the last quarter, making up almost 55 percent of the total iPad shipments and helping Apple maintain a near 40 percent share of the tablet market. The pricing of the iPad mini has thus helped Apple carve out a new slice of the tablet market with a middle price band of $329 and in the process, also dominate the tablet market as a whole.

The plastic back of the rumoured budget iPhone

A similar strategy was seen with the iPod nano. The launch price of $199 was again perceived as too expensive as the low-end MP3 players of that time were significantly cheaper. But the iPod nano proved to be immensely successful and ensured Apple’s near monopoly of the MP3 player market.

This strategy of sacrificing some of its margins in order to unlock yet another segment of the market has been spelled out by the company’s CFO Peter Oppenheimer. “We are managing the business for the long term and are willing to trade off short-term profits where we see long-term potential,” he said during Apple’s most recent earnings call.

According to JP Morgan, we could see this strategy being played out in the smartphone market too. The middle section of the smartphone market is dominated globally by Samsung. The Korean company has a market share of over 35 percent in the $200-500 price range. Apple’s current flagship smartphone iPhone 5 starts at $649. The analysts from JP Morgan opine that launching a new product in the $350-400 level could see Apple secure nearly 25 percent of that market share in a matter of just 12 months.

There is definitely a market for Apple phones in that range and the recent sellout of the two-generations-old iPhone 4 priced at Rs 26,000 (approx $480) in India is a good indication of that. A new Apple phone priced in and around Rs 20,000 ($350-400) will be in sync with its strategy thus far and help it grab a chunk of the smartphone pie in the middle segment.