A budget iPhone from Apple | Alex Hern

The Pegatron contract suggests Apple now sees the need to drop its BMW-style approach and launch a low-cost model

Apple has never been a company particularly interested in the low end of the market. Its self-image is as the BMW of the tech world – and for years it had the market share to match. But with the sequential successes of the iPod, iPhone and iPad, each the biggest-selling single device in its field, one half of that equation has gone awry. Apple sells BMW-quality goods (and makes BMW-quality products) to more people than it could ever have dreamed of scarcely a decade ago. With that taste of widespread popularity, has the company seen the appeal in getting its creations in the hands of as many people as possible?

There's hints that may be the case. The Wall Street Journal reports that the company is shifting some of its Taiwanese business away from Foxconn, the gigantic technology firm that has assembled nearly all of the world's iPhones and iPads, to a little-known firm called Pegatron. The reason? Apple apparently needs to cut its margins as slim as they will go while assembling a new low-cost iPhone, "to be offered later this year".

That's come as a surprise to many, since the standard response when asked "why doesn't Apple make a cheaper iPhone?" is that they do. Sure, an unlocked iPhone 5 starts at £529; but an iPhone 4 is more than £200 less, selling for £319. That strategy, of selling last year's top-end as this year's budget option, is widely seen as sound business. It lets the company focus all its research and development efforts on just one product at any one time, leads to massive economies of scale, and gives the company much longer to iron out flaws in the production process. On top of that, it leads a product portfolio you can place on a single table.

Why might Apple feel the need to drop this tried-and-tested strategy now? Take a look at two other things that happened yesterday for a clue.

Firstly, Samsung launched its Galaxy S4 Mini, a smaller version of its flagship S4 Android phone. Of course, "smaller" has to be taken hand-in-hand with the fact that the S4 is really, really big, and the S4 Mini is actually slightly bigger than an iPhone 5. But, crucially, what is likely to be Mini is its price. The full-size S4 is priced around the same as an iPhone, which means it's strictly for Android aficionados; the Mini, though, could steal a few price-sensitive customers away.

And then Google started dropping hints about its own "hero" phone, as the best-of-breed devices are known. The Moto X will be made by Motorola, which Google bought outright in 2011, and is being pitched as a direct attack against Apple's profit margins. Dennis Woodside, Motorola's CEO, told the AllThingsD conference in LA that the price of a smartphone "is not going to persist", and that his company doesn't have the "constraints" of the iPhone's 50% profit margin.

It would be a big move for Apple to break its pattern and release a new low-cost iPhone, but the writing's on the wall. The company has just released a 16GB version of the iPod Touch – with a different design to the bigger and pricier 32GB and 64GB models. It's baby steps yet, but maybe the company has decided that fighting on all its fronts is more important than a product portfolio that can fit on a table.


Alex Hern

The GuardianTramp

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