What Does a Cheaper iPhone Mean for Apple? (AAPL)

What Does a Cheaper iPhone Mean for Apple? (AAPL)

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Recent news has suggested that Apple Inc. (AAPL) is in the process of developing a less expensive iPhone expected to roll out later in 2013. While this would not be the first time that Apple has produced a cheaper version of one of its signature products (think iPad Mini), it does signal a possible turning point for the tech giant.

Recent history has shown that Apple has been on the forefront of computer and mobile product innovation. In the past decade we have seen the rise of the Macbook, iPod, iPhone, and most recently the iPad. However, it seems as though this era of innovation might be on the back end of its timeline. Since founder and former CEO Steve Jobs passed away in 2011, Apple has struggled to find its creative mojo once again. Current CEO Tim Cook has done his best to keep Apple on top of the tech world, but a recent rise in competition from Samsung, Google, and other tech players is making it tougher for Apple stay on top for long.

History shows us that major tech players do not stay on top for long. It is probably only a matter of before Apple’s growth declines and some other company takes its place; the recent dividend payout, share price pullback and a release of a less expensive iPhone might be the signal of the end of Apple’s time at the top.

The Cheap iPhone

Certain news outlets and analyst have learned of Apple’s possible plans to release a version of the iPhone in the $99 to $149 price range which could possibly debut in late 2013. This news is not all that surprising after Apple released the less expensive version of the iPad, the iPad Mini, in November.

Some contend that a decision to release a less expensive product is a strategy decision to take advantage of emerging market demand, especially in China. It is also a strategy to help compete with Samsung smartphones that use Google’s Android software. These Android products made up 75% of the smartphone shipments in the third quarter while Apple only made 15% of shipments, according to the IDC. A strategy to release a new, cheaper iPhone with a modified design to make it less expensive would be a shift in strategy for Apple; to reach budget-conscious consumers in the past the company cut its price of older iPhone models.

Though this might be exciting for consumers who would like to own Apple products but struggle with the decision to pay the hefty price tags, it could also mean an end to Apple’s high end market. Now, Apple executives might pave forward with a plan to broaden its already large consumer base at the expense of innovation moving forward. This could mean greater sales growth in the short term, but long term implications could be dire. After all, at a certain point the technology product market becomes essentially a commodity market when innovation reaches a standstill. If Apple has reached this point, it could go the way of Dell, Sony, and even Microsoft (MSFT); once great tech firms that struggled to stay at the top as innovation left them in the dust.

Where Will AAPL Go From Here?

Many insiders question Apple’s ability to truly innovate going forward, but it does not mean that it is impossible. There are rumors that Apple is developing at TV that could alter the current home viewing experience. The problem is that this Apple TV development seems to be at a stand still. It has been said that Tim Cook is struggling with the development and release of this product after it was said that Steve Jobs had the product figured out.

If Apple were to jump over these development hurdles, it could result in Apple hitting the big time once again with a product that consumers would bend over backwards to purchase and leave competitors scrambling to keep up with the innovation. However, as this rumor goes on longer it is only a matter of time before another company comes out with the next big thing that would leave Apple scrambling to figure out what to do.

Regardless, there is little going on the way of true innovation among Apple and its competitors if the recent Consumer Electronics Show is any indication. If this is the case then Apple will stay on the top in the short term. The problem is that long term expectations of Apple will start to dwindle if the company fails to innovate.

The Bottom Line

Apple is struggling to find its voice without Steve Jobs; there is no question about this. Gone are the days of a true focus on product innovation. Now it seems as though executives are more concerned with maintaining a well known brand than a company with well known products. In the short term, this strategy will keep Apple floating at the top. However, if the strategy going forward is to just release cheaper products rather than products that make a splash, Apple could struggle to be a growth investment.

On the other hand, if Apple continues to have these issues executives could shift the company from a focus on growth to a focus on being a more mature, higher dividend paying stock. Only time will tell.

Apple, Inc. (AAPL) is not recommended at this time, holding a Dividend.com DARS™ Rating of 3.4 out of 5 stars.

Be sure to visit our complete recommended list of the Best Dividend Stocks, as well as a detailed explanation of our ratings system here.

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