Tim Cook describes bold future for Apple. But cheaper iPhones? Maybe not.
Apple CEO Tim Cook admits that he rarely has bad days but when he does, Mr. Cook takes a trip to the Apple Store.
鈥淚t's a feeling like no other,鈥� Mr. Cook at the Goldman-Sachs Technology and Internet Conference on Feb. 12. 鈥淚鈥檓 not even sure 鈥榮tore鈥� is the right word anymore. They鈥檝e taken on a role much broader than that.鈥�
And there might be some truth to what Cook says. Asymco analyst Horace Dediu聽 charts today that illustrate Cook鈥檚 point. Apple retail stores pull in a little over $6,000 in sales per square foot. That ratio is huge. The runner-up, Tiffany & Co., came in second with less than half that number -- just $3,000 in sales per square foot of retail space.
鈥淭hey are the face of Apple聽for almost all of our customers,鈥� says Cook.聽鈥淚鈥檝e never been more bullish about innovation at Apple."
On the topic of innovations, the Apple rumor mills quickly picked up the often-repeated whispers of a cheaper iPhone. Cook neither dismissed nor confirmed the rumor, instead insisting that Apple鈥檚 鈥渘orth star鈥� has always been great products. This mantra, according to Cook, means that Apple is looking at ways to make cheaper products without sacrificing quality. Cook鈥檚 example of this unwillingness to lose quality was to bring up the iPad. Critics had long asked Apple for a MacBook with a price tag below $1,000. After concluding that the company would be unable to make that happen, Apple created the iPad, he says.
The Wall Street Journal in January that Apple has, indeed, been working on a cheaper iPhone since 2009. However, the company could still discard the idea. One reason for dropping the plans could be the possible effect of a cheaper iPhone on the company鈥檚 profit margins.
鈥淎 less-expensive iPhone risks crimping the company's profit margins, which executives have been loath to sacrifice. Even small changes in margins often sway investors,鈥� says WSJ鈥檚 Jessica E. Lessin.
Apple鈥檚 current 鈥渃heapest鈥� iPhone is the iPhone 4, which is free with a two-year contract. The iPhone 4S is a close second starting at $99 with a two-year contract. This, , makes it 鈥渦nclear just what a budget iPhone would be, at least in the United States where phones are usually sold by carriers with a subsidy.鈥� Of course, outside of the US, where carrier contracts are less common, iPhones cost closer to $700.聽
Subsidies are what allow Apple to sell the iPhone for such a low price through retailers. The contracts enable the company to recover their costs. The IW that Apple will have to consider alternative subsidy models if they want to make a cheaper iPhone still profitable.
When Cook spoke at the same event a year ago, the public was still reeling from Steve Job鈥檚 death. Cook was reserved and quiet. This year, Cook passionately spoke about Apple, declaring his pride and vision for the company.聽
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