Apple to release cheap iPhone 4

Apple is expected to release a cheaper iPhone 4 within weeks, cutting profit margins to win lower-end customers from rivals such as Nokia in China and other emerging markets. In addition to the launch of the smaller iPhone 4, Apple is targeting an end-September launch for the next-generation iPhone 5, one source told Reuters, confirming earlier reports on blogs and industry websites.

The new iPhone – which some have dubbed the iPhone 4S because of its largely identical appearance to the existing iPhone 4 – will have a bigger touchscreen, better antenna and an 8MP camera, one source told Reuters. Its two manufacturers have been told to prepare production capacity for up to 45m units altogether, the source said. The phone will be made by Hon Hai Precision Industries and Pegatron Corp, the person added.

Meanwhile, the Wall Street Journal reported on Tuesday that the Sprint network will begin selling a new version of the iPhone in the US from mid-October, which would make it the third distributor for Apple's products in the US after AT&T and Verizon. Reuters said Asian suppliers have begun making a lower-cost version of the hot-selling smartphone with just 8GB of flash storage, to arrive around the same time Apple unveils its iPhone 5.

The move would mean Apple, which has stuck to the higher end of the booming mobile and smartphone market since unveiling the iPhone in January 2007, would be seeking out new markets at new price points to sustain the rapid growth that has seen its stock value rise to make it the world's most valuable company by market capitalisation.

Apple sold 20.34m iPhones in the second quarter versus an expected 17m to 18m, and is increasingly looking to Asia to boost future results. It is in talks with leading Chinese carriers China Mobile and China Telecom Corp, both are eager to begin selling the iPhone officially. China represents the largest untapped market for smartphones, a sector that is roughly doubling in size annually –although some analysts think that 2011 will mark its fastest growth.

"A lower-priced version of iPhone 4 seems to be a necessary evil at this point in the iPhone adoption cycle, especially in emerging markets where the average income of individuals is much lower," said Channing Smith, co-manager of the Capital Advisors Growth Fund, which owns Apple shares.

Pat Becker, portfolio manager at Becker Capital Management, said Apple is looking to take a chunk of the market that is currently dominated by Nokia, which is widely expected to release a new phone running on Microsoft's Windows Phone software by the end of the year.

Nokia dominates the lower end, while Apple has so far focused only on the premium market. But the Finnish company's decision announced in January to discontinue its Symbian platform, and the rapid sales growth in the far east of handsets using Google's free Android mobile operating system, has eroded Nokia's market share substantially in China, formerly one of its strongholds.

Apple's move would also echo its approach to the music-player market, which it dominated by introducing a number of lower-cost devices such as the iPod mini, shuffle and nano once it had established its top-end dominance with the original player.

A cheaper phone risks cannibalising Apple's premium iPhone model and pressuring margins, but the California company needs to expand its emerging market share, analysts say. "Your best defence is sometimes your offence," Becker said.

The Wall Street Journal said Sprint plans to sell the iPhone 5 with an unlimited data plan for contract phones, a policy abandoned by other carriers but which is still seen as an effective method to attract new customers.

"Combined with the company's marketing focus on its unlimited plan, iPhone would drive a rebound in subscriber growth," said Mizuho analyst Michael Nelson who said it could help Sprint exceed his expectation for fourth-quarter net subscriber additions of about 190,000.

Since Verizon and Sprint use the same CDMA network technology, which differs from the GSM system used by AT&T and European carriers, analysts have long speculated that it made sense for Apple to widen its distribution to Sprint, having added Verizon in January. While Sprint executives have previously said they would like to sell the iPhone, they have never confirmed they were in talks with Apple to do so.

Apple, which demands high levels of secrecy and security from suppliers and employees, would not comment.

The iPhone 4 was launched June 2010 in black 16GB and 32GB versions, with white versions added to the lineup in April 2011. The 8GB version is expected within weeks, two separate sources have told Reuters.

"Apple may want to push into the emerging market segment, where customers want to switch to low- to mid-end smartphones from high-end feature phones, which usually cost $150 [£91] to $200," said Yuanta Securities analyst Bonnie Chang. "But I think for an 8GB iPhone 4, the price is hard to go below $200, so Apple will still need a completely new phone with low specifications for the emerging markets."

An iPhone 4 without contract commitments now costs more than $600, and the largest untapped market for buyers lies among those who buy mobile phones on a "pay as you go" basis.

Apple's chief operating officer, Tim Cook, said in July the company is optimistic about greater China, in which Apple includes mainland China, Hong Kong and Taiwan.

"I firmly believe that we are just scratching the surface right now," Cook said about China. "I think there is an incredible opportunity for China there."

Asia Pacific – accounting for about one-fifth of Apple's total revenue – and greater China in particular helped Apple's revenue surge 82% to $28.6bn in April to June. Overall, Asia Pacific revenue more than tripled to $6.3bn in the quarter.


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