An iPhone that costs about $330 will take Apple (NASDAQ:AAPL) to success in China despite the potential cannibalization and lowered margins for the company, says Morgan Stanley’s Katy Huberty. According to the analyst, a relationship with the country’s largest wireless provider, China Mobile (NYSE:CHL), is also on its way for Apple, driving further growth.
“We believe Apple could launch iPhone Mini at $330, in-line with flagship products in China from Lenovo, Huawei, ZTE, and Coolpad,” Huberty writes in a note to clients on Tuesday. “Stabilization in China smartphone pricing and growth in China Mobile’s 3G smartphone share ripen the market for a lower-priced iPhone. A $330 iPhone triples Apple’s addressable market in China and is incremental to earnings per share even at a low 40 percent (gross margin) and with flattening growth for the legacy iPhone.”
According to Huberty, even at that low gross margin and assuming a one-third cannibalization rate because of flattening legacy iPhone shipment growth, the iPhone mini adds incremental revenue and gross profit dollars.