How low will Apple go on the iPhone 5C?

Analysts peg unsubsidized price between $340 and $400 for Apple's expected new lower-priced iPhone

Apple's new iPhone 5C will sell at an unsubsidized price between $330 and $400, analysts said today, even as some questioned whether the change in the company's lower-priced strategy would pay off.

The long-rumored lower-cost iPhone -- dubbed the iPhone 5C, perhaps for "Color" -- will probably roll out in about five weeks, after a Sept. 10 unveiling alongside the full-priced successor to the iPhone 5, experts agreed.

But how Apple prices the iPhone 5C and what's inside -- that's where the experts were at odds.

"The rumors we're getting from the supply chain is that it's the same as the iPhone 5 but in plastic," said Carolina Milanesi of Gartner in an interview. "In other words, there will be no difference between the iPhone 5C and the iPhone 5 in performance."

Analysts have argued that Apple needs an all-new lower-priced iPhone to compete with hard-charging Samsung and countless cheap models from others, rather than continue to rely on selling older models at cheaper prices. The goal: Keep its growth in line with Wall Street's expectations by broadening the potential pool of buyers.

Android-based phone sales have exploded over the past year, with much of that growth in the lowest-priced ranges, where devices sell for $200 or even under $100. Apple won't -- or can't -- compete there, but by going lower, it can leverage its still-powerful brand and pick up sales in markets where it's now weak, in particular countries where carriers rarely subsidize purchases.

Apple could try to go head-to-head with Android at the lowest prices, but Milanesi said it was unlikely. "Could they make something that costs $99 and sell it for $199? Maybe. I don't know," she said. "But if they did, it would not be the same kind of phone, and it would give developers problems."

Whether such a phone had a smaller screen, one with lower resolution, or both, adapting apps would be yet another burden on developers, which Apple wants to avoid, what with Android breathing down its neck in app download volume and app revenue. "If they radically changed [the specifications of the iPhone 5C], it wouldn't help the app ecosystem," Milanesi said. "And it might not be able to sustain the newest iOS. Then it would be similar to the Android situation, where the market is fragmented with multiple versions [of the OS]."

Instead, Apple's iPhone 5C will be a mid-priced device, the analysts concurred.

Brian Marshall, a Wall Street analyst with the ISI Group, estimated the bill of materials, or BOM, of a hypothetical 8GB iPhone 5C at $205, $45 of which was credited to non-hardware costs like licensing and warranty. According to Marshall, that would let Apple sell the device for $339 at a 39.5% margin.

In a note to clients Tuesday, Marshall outlined the pricing structure of the iPhone 5C, saying that consumers could purchase it minus a contract for $339, or in markets where carriers subsidize sales, for $99 with the mobile carrier picking up the remaining $240.

Sameer Singh, an analyst who covers mobile devices at his Tech-Thoughts website, had a similar take on prices, again based on compiling a BOM estimate.

His conclusion: Apple could manufacture an iPhone 5C for $150 to $155, virtually the same number as Marshall came up with before the latter added in license royalties and warranty costs.

But while Marshall forecast a $339 unsubsidized price, Singh thought that was too low, even though in January he pegged the likeliest price between $299 and $349.

"I'm beginning to think that the price we're talking about is actually at the low-end of the potential range," Singh said in an email reply to questions. "If the low-cost device and iPhone 5S are launched in all markets -- very likely -- it would mean that Apple would have to discontinue the iPhone 4 [which has an unsubsidized price of $450], the iPhone 4S [$550] and possibly the iPhone 5 [$650]."

Apple, said Singh, has two problems: First, competing with inexpensive Android devices in unsubsidized markets, and second, minimizing revenue losses in subsidized markets, which are Apple's most important. But by going low in the range -- say $339 -- Apple risks accomplishing neither.

"The primary competition in unsubsidized markets is at or below $200, while in subsidized markets it's above $450 or $500," Singh noted. "So coming in at $339 to $349 risks losing revenue in subsidized markets without making comparable gains in Asia. [So] I wouldn't be entirely surprised to see a price as high as $399."

Milanesi was also convinced that Apple wouldn't reach for an under-$300 price, but instead said the Cupertino, Calif., company would list the iPhone 5C at $350 to $400.

But would that be low enough? Milanesi thought so.

"A mid-range device like this would be about half the price of what Apple is selling today," Milanesi said, referring to the iPhone 5, and the future iPhone 5S, which is expected to have the same non-contract price. "Three hundred dollars is a heck of a lot in emerging markets, and we do think it will open up an addressable market."

Gartner's future forecasts are based on sales of 10 million iPhone 5Cs during 2013's final quarter.

Milanesi said the assumption was that the iPhone 5C would cannibalize sales of the top-tier iPhone 5S to the tune of 30%. In other words, if Apple sold the 10 million iPhone 5Cs that Gartner anticipates, only 7 million would be additive; 3 million would have come at the expense of iPhone 5S sales.

Gartner's cannibalization estimate was close to that of Gene Munster, an investment analyst with Piper Jaffray, who recently halved his cannibalization factor from 50% to 25%.

Apple will dump the iPhone 4 and iPhone 4S from the lineup, Milanesi said, but retain the iPhone 5 to keep its three-model tier in place.

"The new low-cost iPhone is crucial to the Apple story," said Marshall, who added that an iPhone 5C was "imperative" for the company to grow its international market share and gross margins.

This article, How low will Apple go on the iPhone 5C?, was originally published at Computerworld.com.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is gkeizer@computerworld.com.

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This story, "How low will Apple go on the iPhone 5C?" was originally published by Computerworld.

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