Is the iPhone too expensive?

Apple is slipping in Europe.

By Motley Fool Pick of the Day Mar 1, 2012 2:38PM

By Rick Aristotle Munarriz


Ask anyone in this country what an iPhone costs, and most will say that Apple's (AAPL) iconic smartphone starts at $199. Models with more storage capacity will set stateside buyers back an additional $100 or $200.


However, this isn't what Apple is making. The world's most valuable tech company rang up an average of $659 per iPhone (including attached services and accessories) during the holiday quarter.


Who pays the lion's share of the difference? Wireless carriers are willing to subsidize more than $300 per phone, knowing that they will more than make that back by locking owners into two-year contracts. It's not pretty. Sprint (S), which was the last of the three leading carriers to begin offering the iPhone, isn't expected to turn a profit until 2015.


And it's not just carriers. Retailers are also hurting when consumers choose an iPhone over a higher-margin Android device. RadioShack's (RSH) gross margins took a beating during the holiday quarter, and the iPhone's availability through all three major carriers at its stores was one of the culprits.


Now let's go overseas. You've seen the long lines and even riots at Apple Store locations in China. However, it's a different story in parts of southern Europe, where carriers can't subsidize smartphones.


The Wall Street Journal wrote yesterday about the iPhone's weak market penetration in certain countries. According to market tracker IDC, just 9% of the smartphones sold in Portugal are iPhones. In Greece the market share drops to a mere 5%.


In the U.S., Android phones don't sell for a lot less than iPhones. If you're willing to rock a 2009 handset, carriers will even give you the iPhone 3GS for free with a two-year wireless contract. However, in countries where handsets aren't subsidized, it's hard to justify a $680 iPhone 4S when a perfectly capable Android phone costs less than $200.


Apple's challenges in Europe aren't new. A study by Kantar Worldpanel ComTech two months ago showed that the iPhone's market share was slipping in Germany, France, Italy, and Spain.


The obvious rebuttal here is Apple's blowout fiscal first quarter. With or without continental Europe, Apple sold a whopping 37 million iPhones this past quarter. However, it does lead one to wonder if Apple's premium pricing is opening too wide a door for Google (Nasdaq: GOOG ) and its army of Android developers to exploit the smartphone market as it penetrates the balance of the market.


Apple's stateside response has to keep older models around at lower price points, but given the rapidly evolving marketplace for both iOS and Android, that 2009 gadgetry has never felt so stale.


It's hard to knock Apple and its ability to carve itself the thickest slice of the industry's profits, but Android's European invasion is really just the beginning.


Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. The Motley Fool owns shares of Google, RadioShack, and Apple. Motley Fool newsletter services have recommended buying shares of Apple and Google. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Mar 1, 2012 6:46PM

It’s always cracked my up how people have to always have the latest and most trendy electronic devices whether they need them or not. I know a young couple here who have been really struggling the past few years to make ends meet and were even in danger of loosing there house yet when the iPhone4 came out they both had to immediately go out and buy one to replace their "so last season" iphones. Of course like most of us they don’t really need any of the new features, they just need to feel like they are trendy tech savvy people keeping up with the latest fads. I remember once I was at an out of town work seminar and some of us decided to go have dinner that night at a particular restaurant but the wait was too long so someone suggested another place. Almost immediately everyone simultaneously whipped out there smart phones to look up other places online. Its as if they were so excited to finally have an excuse to use there data services so they could justify the extra money they are forking out every month. And it was also a way to show off who could pull up the info fastest. Don’t get me wrong I love technology. In fact I was the first kid in my school to have an electronic calculator and also the first to have a digital watch. And when living in Japan I bought the first Sony Discman, long before they were sold here in the USA. The problem is that today having these things is more about being fashionable and trendy than anything else. I sold my own iPhone years ago when I realized I was no longer using data services enough to justify the extra monthly expense. And without a data plan why would I need my iPhone. I’ll admit that the WiFi was handy when I was traveling a lot a few years ago spending countless hours in airports but I don’t need it much anymore. Anyway I went to a more compact touch screen flip phone. Not as trendy but it gets the job done and I like it. If I ever come to need constant Internet access on my phone again then I might get another iPhone but not before then. Anyway the point is Apple can charge pretty much whatever they want for the iPhone and people will figure out a way to pay for it so they can feel good about themselves and feel as if they are keeping up with the latest scene.

Mar 1, 2012 9:02PM
Who "needs" a smart phone with a data plan? Smart phones are toys for most people, not a necessity.

People think they get a great deal. The new iPhone is only $199! Um...factor in the total cost of that 2 year contract and think again. Most people should realize it's stupid to purchase appliances and furniture on store credit, but somehow cell phones are different.

Anybody that thinks having the latest iPhone makes you "tech-savvy" is stupid. It may get you a job selling smart phones at your local Best Buy. If that is your goal in life, more power to you.
Mar 1, 2012 9:11PM
I don't own an iPhone or an iPad. I have an iPod that I got for free when I bought some furniture 4 years ago. I am in IT (for 30 years now). I have a PC on my desk. I have a home computer network with a computer in about every room in my house (none in the bathrooms). I have 3 TVs hooked up via the internet for playing or watching anything I could find on the net or in my own 3 terabytes of network accessible servers/peers. The only time I don't have access to online data is while I'm driving in my car to and from work. I have Bluetooth hands free with voice recognition in my car and a cheap Nokia phone that doubles as an mp3/video/photo device (and it's pretty good at doing those things). So what!?! They serve a purpose - for me and my family (not my ego). If I wanted an iPad or iPhone, I could certainly afford to buy one. What possible thing could an Apple iPhone or iPad provide me with other than stroking my ego or giving me a way to show off? We live in an age where devices are no longer about their usefulness, the overwhelming reason to buy one is to stroke your ego (in the old days, we called it 'sitting in a ring and performing a sexual act').
Mar 1, 2012 7:18PM

You are so right slobeachboy--and it's called "SHOW OFF" 

Mar 1, 2012 11:24PM

I agree that people don't need televisions, but I disagree about computers. 

Most jobs now require some computer literacy. Maybe we don't need Facebook, but email, skype, and social networking sites can enhance our ability to connect with friends and family, and greatly reduce the cost of such communication. 

Paying bills online and doing other kinds of research is quick and convenient. Some jobs now only allow online applications.

Internet connectivity is now becoming a utility as necessary and useful as electricity. And you need a device that can connect to the Internet so you can actually use it. I happen to prefer a device that allows me to type faster than 10 words/min, which is about all you can do with a cell phone.
Mar 1, 2012 9:24PM
i bought the original iPhone long after it was on the market for $49.95.   It's the easiest phone I have ever used and I purchased the iPad2 this year.  It's great for work and traveling.  If you don't want one - don't buy it!
Mar 1, 2012 6:31PM
I can hardly wait for a Samsung Galaxy Note which will project 3D holograms of callers....Samsung started in Japanese occupied Korea (a colony from 1910) in 1938 as a noodle factory.  Talk about diversifying! 
Mar 1, 2012 8:53PM
Name 1 droid phone or any phone for that matter that is equal spec wise to the any I phone, that actually functions as well for 200$ with out a contract. Wireless carriers are making a killing on contracts which is what they always did and will continue to do and they will beat the door down for the newest I phone.
well Kent say what you want but everyone has their opinions and it's the freedom of choice so you like the droid better doesn't mean it is a better phone and the droid 4 is older phone to...i got an iphone and have no problems at all with it so as they say opinions are like ****s everybody has one
Mar 1, 2012 9:10PM
Iron mike,
Most people don't need televisions or computers either,  if you think about it, both contribute to a sedentary lifestyle, thus degrading the quality of  life.

Mar 2, 2012 12:32AM

Woz cofounder of Apple said 1000 per share.

Apple cloud is free and interfaces all its devices.

Over 200000 apps.

Ipad3 is like an iphone5 equipped with Siri and sophisticated phone capabilities.

Mar 1, 2012 7:58PM
None of the phones cost enough ! When ever you see every adult, and even children with them, something is wrong! I think we can pay the debt back to China and others by really taxing these toys !
Mar 1, 2012 6:23PM
Rick may be a longtime contributor and he may call them as he sees them, but I think he has also needed glasses or at least a better prescription for a long time, at least when he's looking at Aapl.
apple is KING BABY and microsoft and droid know it 
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