Apple and the story of the DVD player, revisited.
by Marc Lerner
Just under a year ago Rob wrote a blog describing how smartphone technology is likely to get cheaper with competition from Android phones and others and how this competition is likely to eat away at Apple’s margins as they are forced to sell their phones and tablets for lower prices and make less and less profit on each sale.
A year on, this idea seems to be entering the mainstream more and more. A recently published Reuters article details how the biggest growth in the smartphone industry is expected to be in the lowest end – phones that cost $100 or less which are mostly sold in Asia and Africa. From the point of view of a premium brand like Apple, this presents a serious problem – as the cheaper Android ones become more popular and it is realised that they are just as good if not better (not the very cheapest ones, which do sacrifice some features but still present far better value for less well-off consumers, but still-cheaper phones like the Google Nexus phone) they will have to dilute the value of their brand and lower prices and therefore margins. At current share prices, we do not think all the margin contraction Apple has coming to it is priced in as yet, and therefore wouldn’t touch it at this point.