Apple Inc. remains the top dog in the smartphone market as it hoards 92% of the profits in the industry. Yet, Apple controls only about a tenth of the global smartphone market in the unit number of smartphones it sells. Analysts think that the market for high-priced smartphone is already being saturated and that Apple needs to start finding ways to sell its phones to low-income buyers.
Two days ago, analysts at Macquarie Research suggested that Apple should start leasing its iPhone if the firm wants to unlock growth in a maturing smartphone market. In their words, “we estimate that overall US smartphone sales at the Big -4 carriers will fall 12.6% Y/Y in 2015 to 105.3m units from 120.4m in 2014.” The analysts believe that leasing contracts will reduce the buyers’ fear about high sticker price of iPhones and it would help Apple sell more phones buy encouraging buyers to upgrade to new models more often.
Wisdom in leasing iPhones
The analysts are confident that leasing iPhones will help Apple maintain its lead the smartphone space. In their words, “Apple could benefit in two ways: first, Apple could perhaps sell 5-7m more new units per year in the US; second, Apple could gain control of the used iPhone inventory and then sell the ‘certified’ used phones for $200 -$350 into the int’l or US prepaid markets”.
Other analysts seem to agree with the Macquarie Research report. For instance, Max Wolff, chief economist at Manhattan Venture Partners told CNBC that “If they want to grow or maintain the market share and the margin they have right now, they need to figure out how to sell more than 50 million units a quarter”.
For Apple to sell 50 million units in a quarter, it needs to appeal to low-income buyers. Yet, only two things can attract people who don’t have much disposable income. The first will be to reduce the price of the iPhone, which Apple will not consider. The second move is to breakdown the price of an iPhone into smaller regular payments that won’t leave a big dent on small paychecks.
Unlocking growth in global market share with leased iPhones
Leasing iPhones can also unlock international growth and expand global market share for Apple. Apple’s iPhones are on the high-end of the price spectrum for smartphones; hence, its phone is beyond the price range of many people globally – this accounts for its 10% global market share.
However, the high price tag of iPhones provides Apple with huge profit margins despite its small global market share. The firm has mentioned that it is not interested in selling its phones to the rest of the world who can’t afford the current price range of iPhones.
If Apple starts leasing its phones globally, the firm can expect more people to jump in the iPhone bandwagon. Brian Blair, co-founder and principal of Grays Peak Capital says Apple need to “work with all the carriers around the globe … to make it as inexpensive as possible to put iPhones in people’s hands and let people get new ones”.