Apple’s iPhone Air Could Be a Winner

The latest rumors for the ever-vibrant Apple (NASDAQ: AAPL  ) rumor mill is that Apple is planning to bifurcate its high-end iPhone lines into two lines. The first would be the standard continuation of the traditional iPhone line (perhaps dubbed the iPhone followed by a generational moniker), but the second line would sell under the iPhone Air brand. This is very similar to what Samsung (NASDAQOTH: SSNLF  ) does with its Galaxy S/Galaxy Note lineup.

Great news for Apple shareholders
While some may believe that Apple launching an iPhone Air would simply serve to keep the current Apple customer base, rather than meaningfully expand it, others believe that this serves as an incremental opportunity on top of the existing iPhone opportunity. While it is certainly likely that traditional iPhone buyers will move to the iPhone Air, there could be a meaningful opportunity to gain share from rival Samsung in the U.S., as well as in the Asia-Pacific region.

What's more interesting is that if this rumor is true (which, frankly, seems plausible enough), this is exciting from a revenue-per-unit and, therefore, a gross-margin-dollar-per-unit standpoint. It is very likely that an iPhone Air would command a premium ASP to the more traditional iPhone, so at constant gross margin, sales of such a device would drive hefty profit up. It's hard not to be excited.

The secondary effect -- weakening Samsung
It is imperative that Apple weaken its largest rival, Samsung, by taking as much of the high-profit-margin share of the smartphone market as possible. Not only does this shift more of the industry's profit dollars into Apple's coffers, but it weakens Samsung, as the company would likely take down spending to keep it as a constant percentage of revenue.

Now, that's not to say that Samsung would completely die and fade away, far from it, actually, but it is in Apple's best interest to significantly weaken Samsung as a competitive threat at the high end. Samsung can turn its attention to more aggressively taking share in the low end, where Apple doesn't really want to play anyway.

More Apple products per year
Another interesting aspect here is that introducing an iPhone Air lineup that is separate from the traditional iPhone (but equally high-end) is that Apple would be able to drum up excitement multiple times per year if it follows Samsung's model of two major releases per year. It's a brilliant strategy, and given Apple's keen understanding of how to build a brand and capture customer loyalty, it would not be a surprise to see this strategy implemented in 2014.

Foolish bottom line
Apple is a solid company with a strong brand and deep technical prowess. While the risk of smartphone commoditization is real, if there's any company that can rise above that and run a business with very robust profitability, it's Apple. It will be very interesting to see how market segment share in the high end shifts when, or if, Apple implements this strategy, but it's tough to imagine that it'll be pretty for Samsung. 

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Read/Post Comments (10) | Recommend This Article (23)

Comments from our Foolish Readers

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  • Report this Comment On January 09, 2014, at 3:40 PM, zippero wrote:

    Ashraf, Samsung's share of the high-end smartphone market has fallen from 40% to 21% in the past year, according to Counterpoint Research. At the same time, Apple's share has jumped from 35% to 65%. The iPhone 5S is ALREADY squeezing Samsung out of the high end, and any larger-screen 64-bit iPhone 6 is just the last nail in Samsung's high-end coffin.

  • Report this Comment On January 09, 2014, at 3:44 PM, zippero wrote:

    Bloomberg today quotes a Samsung exec saying the Galaxy S5 won't come out until April. Wow, this means the iPhone 5S has that many more months to trash the Galaxy S4! But even the Galaxy S5 will just be 32-bit as far as its Android OS, so 64-bit Apple has until April 2016 to pull away even further, by which time Samsung's high-end will be dead.

  • Report this Comment On January 09, 2014, at 4:37 PM, Mathp wrote:

    So what are the features in an iPhone Air that are not in the 5S already?

  • Report this Comment On January 09, 2014, at 5:23 PM, Waldo wrote:

    And the stock closes down over $6 today. Blatant manipulation to lower the price for the big boys prior to earnings are announced.

  • Report this Comment On January 09, 2014, at 6:54 PM, dwilh51183 wrote:

    AAPL IS TANKING THEIR STOCK INTENTIONALLY SO THEY CAN BUYBACK 20 BILLION OF STOCK AT EARNINGS SEASON. THEY WANT TO BUYBACK SHARES AT LOWER PRICES SO THEY HAVE BEEN "SHORTING" THEIR OWN STOCK. ONCE BLOCKBUSTER EARNINGS ARE ANNOUNCED COOK HAS AUTHORIZED THE HUGE 20 BILLION STOCK BUYBACK PROGRAM TO KICK IN.WHY ELSE WOULD AAPL DROP $40 A SHARE ON NEWS OF GAINING 763 MILLION MORE CUSTOMERS, NEWS OF IPHONE SALES SOARING, NEWS OF AAPL HAVING THE TOP 3 SPOTS IN REGARDS TO PHONE SALES AT ALL 4 MAJOR CARRIERS, ...VERIZON,SPRINT , AT&T, AND T-MOBILE. AAPL ALSO HAS BEEN ON TRACK FOR 18% INCREASE ON IMAC SALES 50% INCREASE ON IPAD AIR , ALL GOOD NEWS .EARNINGS ESTIMATES HAVE BEEN RAISED BY MOST ANALYSTS EXCEPT A FEW FOOLS, SO THIS EXPLAINS WHY AAPL STOCK HAS BEEN WEAK SINCE XMAS

  • Report this Comment On January 09, 2014, at 7:43 PM, ralphhenault wrote:

    What else is different for the small investor.... Big business has driven down the price of stock to fill their pocket's as usual and this won't ever stop, including big time individual stock investor's who make money, called GREED for themselves, which as we know has been going on for years, and will never, end, unless you make them pay up for short trades, capital gains, etc..., but this will never happen... So, keep picking on small individual investor's who can't be day traders, and let life continue as it may...

    But????? bottom line???? a flat tax rate for all is required, as small investor's can't pay the piper as one say's,,, the big boy's will continue to make bucks in spite of what we do.... But, that's life, accept it and play the game,,, and make the rich richer, as we the little guy's will never be able to complete, regardless, or costs of buying, selling, tax consequences.... The big boy's make more on a one quarter of one percent, than we can make on returns of one percent... So, let life go on, and as long as they let the little guy live,, I guess you have to be pleased,, and I'm the little guy, with about $2MM to invest, and I'm just a pimple on someone's A----. Pretty sad commentary?????

  • Report this Comment On January 10, 2014, at 9:09 PM, chopchop0 wrote:

    Smartphone commoditization is real. Aapl permabulls continue to rationalize the stagnating stock price but the market knows better

  • Report this Comment On January 10, 2014, at 10:06 PM, marichel wrote:

    There are a lot of littler guys than you out there with less than $2MM to invest who aren't going to feel sorry for you.

  • Report this Comment On January 11, 2014, at 7:31 PM, teenbeat wrote:

    Other than the name, the article doesn't explain what an "iPhone Air" is.

  • Report this Comment On January 12, 2014, at 10:50 PM, g1929m wrote:

    what is an I-phone air?

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