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Why Apple Doesn’t Have Multiple iPhones

 November 08, 2012 04:07 PM
 


(By Mani) Apple Inc. (NASDAQ:AAPL) has become synonymous with customer loyalty – a major factor helping the Cupertino-based technology giant to sell its products easily. Consumers are willing to shell hundreds of dollars for a new version of Apple gadget despite the product featuring only minor enhancements.

It all started with iPhone (not to forget iPod). However, without iPhone, Apple may not have grown this big – a company with more than $500 billion in market cap with a cash position in excess of $100 billion.

But, there is an interesting question in the minds of consumers and investors - Why Apple doesn't have multiple iPhones?

[Related -Sobering Quarter and Guidance for Long-Time Apple Bull]

The question gained momentum especially after the iPad mini is selling as hot cakes. Apple sold three million of its new iPad mini and fourth generation iPad for the first weekend after the launch, breaking the previous record of 1.5 million held by the third generation iPad.

All other vendors started selling toned-down versions of their best-selling smartphone at cheaper rates to gain mileage in emerging markets. Nokia Corp. (NYSE:NOK) even with Windows phones after only being in the market for about a year has a low-end version of the product available for much lower price points.

It is the same thing with Samsung with its galaxy series. Samsung is only able to get 50 million units a quarter because they have a dozen different models, many of which are just not very fancy. Those low-end models may not meet the definition of being a proper smartphone, but they are classified as such.

[Related -What does Istanbul have to do with AAPL?]

In fact, Samsung's strategy has been about moving all of their products to become smart by re-engineering them and re-releasing them as low-end.

The question keeps coming back, why isn't Apple doing this?

Yes, Apple cuts the price of the preceding generation of iPhones whenever it launches the newer version. However, it still hasn't tried something like an iPhone mini.

"My tentative answer has been that they're still in the skimming strategy," Apple observer Horace Dediu said in a UBS note.

Dediu views that Apple haven't contemplated penetration because it isn't something that works either economically for them or works with the brand.

"So it's something of a puzzle that other Apple products have this breadth of options, but I'm still drawing a blank once we arrive at the iPhone," Dediu noted.

Paradoxically, the iPhone turned out to be very lucrative, and it grew the business so fast and so much that Apple is almost too sensitive to that product even though it's the least diversified offering in their portfolio.

"So we have a very delicate balance between a product that is very narrow and yet so top- heavy and other products that are broader but haven't gotten to the size to take up the slack in case the iPhone begins to slow down," said Dediu.

So, no wonder Apple as well as its assembler Foxconn is struggling to meet strong demand that even weighed on the company's first-quarter outlook, which came in below the Street view. Apple said iPhone 5 demand exceeded the initial supply and while the majority of pre-orders have been shipped to customers, many are scheduled to be shipped in October.

Apple's iPhone assembler Hon Hai Precision Industry, the entity of parent Foxconn Technology Group, is finding it hard to cope with the massive demand for iPhone 5 units, according to a Reuters report.

Foxconn Chairman Terry Gou admitted, "It's not easy to make the iPhones. We are falling short of meeting the huge demand," the report added.

On Sept. 24, Apple said it has sold over five million of its new iPhone 5 - the thinnest and lightest smartphone ever - in the first weekend after the launch, breaking the previous record of four million held by the iPhone 4S.

The data shows that users are loyal simply because they like the products, not just because they feel they're locked in or they have no choice in changing. The satisfaction numbers would tell that story—satisfaction numbers for Apple's products are above 80 percent, even above 90 percent in some cases. Android has it in the 60s.

"At the same time, you have the stickiness, the switching costs of investments in software and accessories, or the fact that your friends are on the same network or have the same type of products. All of these factors come into play, and Apple is dealing with extremely rapid upgrade cycles," Dediu said.
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