The market's been rotating back into shares of Apple (NASDAQ:AAPL) after months of neglect, and clearly anticipation is building for the new iPhone that will undoubtedly be introduced on Sept. 10.
Will we get a gold-colored device? Is Apple really going to include a fingerprint scanner on the home button? Do we really want a cheap and plastic entry-level iPhone?
Now, there's little reason to get excited about gold- or champagne-colored iPhones. Don't most people simply slap a protective case on the defining mobile device that snuffs out the shell? Fingerprint sensors may also sound cool for security-hungry iFans, but it's not as if other gadgets with added layers of security have fared all that well in the past.
This brings us to those cheap plastic iPhones that no one seems to care about. Investors don't like them because they will naturally hit the market packing lower margins. We've seen Apple's margins contract in recent quarters, and this isn't likely to spell salvation on that front.
However, the cheaper iPhone may be the biggest thing that the market sees out of the comeback kid of Cupertino in three weeks. It could be a game changer, and investors need to look beyond the margin contraction and the lower average selling prices.
Apple needs this in a bad way.
Yes, iPhones seem to be the only product growing in unit sales these days for the tech bellwether, but even there Apple's losing market share. Gartner's recent study shows Apple's chunk of the worldwide market has contracted from 19% to 14% over the past year.
A cheap iPhone changes that. A cheap iPhone that has features currently being offered by similarly priced rival products -- instead of just offering a two- and three-year old iPhone model at $100 and $200 off, respectively, makes Apple trendier.
Folks like to save money, and that's made Google's (NASDAQ:GOOGL) Android a major beneficiary. When folks keep buying iPhone 4 and iPhone 4S models instead of paying for the iPhone 5 -- and earlier this year, at least one major carrier reported that only half of its iPhones sold were the latest model -- savings supersede newness.
Well, at least that's what Apple better hope happened. It probably wouldn't want to admit that folks went cheaper because Apple's latest iPhone wasn't improved enough. Then again, we're seeing cheaper Android smartphones outsell Apple's cheaper smartphones, so perhaps the more damaging nugget there is that Apple's old stuff isn't good enough to take on Android's new stuff.
This is where the cheaper phones come in. The market may not applaud the announcement. Wall Street wouldn't cheer if Chipotle introduced a dollar menu or if Tesla began offering Kia-priced cars. However, Apple is at the point where it needs cheaper devices if it doesn't want to continue to shrink in relevance.
This is what's happening, especially overseas in markets where carriers don't subsidize smartphones. As the smartphone migration continues, the new buyers don't necessarily have the means of the early adopters. Google's open-source platform is an easy sell.
Apple needs to put up a fight against Android before there isn't a battle at all. Offering cheap margin-zapping iPhones will be important for a company's that's starting to realize that it can't simply up the stakes on features and keep the price the same.
Rolling out cheaper iPhones with current features can't happen soon enough.