Investment bank Morgan Stanley has issued a note to investors estimating Apple could add nearly $2.4 billion dollars to its handset business and triple its smartphone marketshare in China by releasing a $US330 iPhone mini.
The note, written by analyst Katy Huberty and republished by Apple Insider, suggests that if an “iPhone mini” were to launch in 2013, Apple’s gross profit margin would decline by 2% to 49%, but this would be eclipsed by nearly $US2.4 billion in additional gross profit.
“We believe Apple could launch iPhone mini at $US330 (about Rmb2,000), in-line with flagship products in China from Lenovo, Huawei, ZTE and Coolpad,” the note states.
“Even in a scenario of low 40% gross margin and a one-in-three iPhone cannibalisation rate (flattening legacy iPhone shipment growth), which we view as conservative, the iPhone mini adds incremental revenue and gross profit dollars.”
The news comes after Apple chief executive Tim Cook recently stated his objective of growing Apple’s marketshare in the developing world, targeting the 50% of consumers worldwide who currently don’t have access to the iPhone.
Earlier this year, Cook met with China Mobile’s chairman Xi Guohua to negotiate the release of Apple iPhone on the world’s largest mobile phone network by subscribers, China Mobile.
China Mobile is critical as it has an estimated 700 million subscribers, a subscriber base roughly twice the population of the US.
While the iPhone is available in China through China Mobile’s competitors, including China Unicom and China Telecom, negotiations with China Mobile have stalled for years over the topic of revenue-sharing between the two companies.
The situation is made more difficult for Apple because China mobile uses proprietary TDMA-based standards for its 3G and 4G networks, while most other carriers offer 3G and 4G over Wideband CDMA.
According to Canalys figures published by SmartCompany in November last year, this has resulted in Apple holding just 8% of the Chinese market, finding itself outside the top five smartphone vendors.