Tim Cook describes bold future for Apple. But cheaper iPhones? Maybe not.
Apple CEO Tim Cook admits that he rarely has bad days but when he does, Mr. Cook takes a trip to the Apple Store.
“It's a feeling like no other,” Mr. Cook announced at the Goldman-Sachs Technology and Internet Conference on Feb. 12. “I’m not even sure ‘store’ is the right word anymore. They’ve taken on a role much broader than that.”
And there might be some truth to what Cook says. Asymco analyst Horace Dediu published charts today that illustrate Cook’s point. Apple retail stores pull in a little over $6,000 in sales per square foot. That ratio is huge. The runner-up, Tiffany & Co., came in second with less than half that number -- just $3,000 in sales per square foot of retail space.
“They are the face of Apple for almost all of our customers,” says Cook. “I’ve never been more bullish about innovation at Apple."
On the topic of innovations, the Apple rumor mills quickly picked up the often-repeated whispers of a cheaper iPhone. Cook neither dismissed nor confirmed the rumor, instead insisting that Apple’s “north star” has always been great products. This mantra, according to Cook, means that Apple is looking at ways to make cheaper products without sacrificing quality. Cook’s example of this unwillingness to lose quality was to bring up the iPad. Critics had long asked Apple for a MacBook with a price tag below $1,000. After concluding that the company would be unable to make that happen, Apple created the iPad, he says.
The Wall Street Journal reported in January that Apple has, indeed, been working on a cheaper iPhone since 2009. However, the company could still discard the idea. One reason for dropping the plans could be the possible effect of a cheaper iPhone on the company’s profit margins.
“A less-expensive iPhone risks crimping the company's profit margins, which executives have been loath to sacrifice. Even small changes in margins often sway investors,” says WSJ’s Jessica E. Lessin.
Apple’s current “cheapest” iPhone is the iPhone 4, which is free with a two-year contract. The iPhone 4S is a close second starting at $99 with a two-year contract. This, according to Informationweek.com, makes it “unclear just what a budget iPhone would be, at least in the United States where phones are usually sold by carriers with a subsidy.” Of course, outside of the US, where carrier contracts are less common, iPhones cost closer to $700.
Subsidies are what allow Apple to sell the iPhone for such a low price through retailers. The contracts enable the company to recover their costs. The IW says that Apple will have to consider alternative subsidy models if they want to make a cheaper iPhone still profitable.
When Cook spoke at the same event a year ago, the public was still reeling from Steve Job’s death. Cook was reserved and quiet. This year, Cook passionately spoke about Apple, declaring his pride and vision for the company.
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