Is the iPhone too expensive?
Apple is slipping in Europe.
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.
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.
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.
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.
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.
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The last time bond investors were this bullish, the 10-year yield saw an extraordinary rise.
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