Analyst: Cheaper iPhone Will Heal the Stock

The rumored lower-priced iPhone could provide Apple’s (NASDAQ:AAPL) stock the product catalyst it has lacked thus far heading into 2013, Piper Jaffray’s Gene Munster has said. The analyst added that he felt that estimates of the phone being priced between $99 and $149 may be too low. He predicted a $199 price tag for the unsubsidized device.

“We believe it is more likely that Apple prices the phone at $149 or $199, more likely closer to $199, off contract given Apple’s history of commanding a premium to the market and believe the core competition at that price level would be $99-199 [Google (NASDAQ:GOOG)] Android devices,” Munster wrote in a note on Wednesday.

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Even at that price, the discount would be substantial, he added: “We note that the cheapest iPhone, the iPhone 4, currently costs $450 off contract and more in many countries were additional taxes are levied. We note that an off-contract iPhone 4 is ~$490 in China and $750 in Brazil, thus the sub $199 price would be a significant discount.”

Measurable Impact on Results

According to Munster, Apple has seen a “measurable impact” on its results over the years from introducing cheaper product introductions and that the lower-priced iPhone could be “slightly dilutive” to his 41.5 percent gross margin target for Apple for 2014.

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“While we expect the lower priced iPhone to carry reduced features like a lower quality screen, casing, and potentially processor, we believe the phone will carry a lower margin than the standard iPhone,” the analyst said.

However, the device will still possibly pull in $6.5 billion in revenue this year at a gross margin of around 30 percent — while current iPhone models have a gross margin between 55 and 60 percent. And while the average selling price of the Apple smartphone was likely to fall from its current level of around $640 to about $520, by the end of 2013, 30 percent of all iPhone sales would be from this new model, Munster said.

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