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Should Apple Inc. Keep the iPhone 6 Around Once the iPhone 7 Launches?

By Ashraf Eassa – Mar 16, 2016 at 9:30AM

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For some markets, price-reduced iPhone 6/6 Plus models could be the key to unlocking growth.

Apple's most successful iPhone yet -- the iPhone 6. Image source: Apple (via 9to5Mac).

Late last year, Apple (AAPL -2.63%) introduced the iPhone 6s and iPhone 6s Plus, which serve as direct replacements for the iPhone 6 and iPhone 6 Plus as the iDevice maker's flagship products. Naturally, the iPhone 6 and iPhone 6 Plus saw price reductions of $100 for each model, making larger-screen iPhones more affordable.

One question that I think is worth pondering is the following: Once Apple introduces the iPhone 7/7 Plus, should it keep selling the iPhone 6/6 Plus? Here are my thoughts.

It depends on the region
In developed markets where people generally have the cash (or the carrier subsidies) to buy new iPhones, keeping the older iPhone 6/6 Plus around at reduced prices doesn't make a whole lot of sense. Fairly high-end phones are quite accessible in developed markets thanks to carrier subsidies and/or common monthly installment plans.

Additionally, in regions where Apple is seen as a status symbol and folks are willing to pony up significantly in order to get their hands on the latest -- though pricey -- Apple products, it would again make little sense to potentially risk cannibalizing sales of newer/higher end iPhones by lower-end ones.

However, in regions where Apple has very little market segment share due to its products being too expensive for many potential buyers (who instead are forced to purchase lower-cost Android devices), keeping the iPhone 6/6 Plus around and reducing prices on them makes perfect sense.

In those regions, there is so little high-end iPhone business to potentially cannibalize that price-reduced iPhone 6/6 Plus models would likely be a net positive for Apple in terms of revenue and total profit.

iPhone 6/6 Plus will probably be quite cheap to produce
The nice thing about Apple "water-falling" older-generation iPhones to lower price points is that by the time Apple needs to use those devices to try to gain share in emerging markets, the cost structures on said devices should be quite good.

Take the iPhone 6 and 6 Plus, for example. The machines and tooling that Apple had installed at its manufacturing partners are probably fully depreciated at this point, which should help lower manufacturing costs. Additionally, the components inside of the iPhone 6 and 6 Plus should also be very cheap for Apple's suppliers to produce and Apple to ultimately acquire.

This should give Apple quite a bit of room to take down pricing on these devices (again, in select markets) while still maintaining reasonable gross profit margins per device.

How low could Apple go?
I don't think Apple needs to go crazy with price reductions on the iPhone 6/6 Plus. Taking them down from the current $550/$650 starting price points to, say, $450/$550 for the entry-level 16 gigabyte models could be enough to drive non-trivial incremental demand.

These price points are still well in the range of "premium smartphone," but for many potential customers in emerging markets, that $100 difference could have a real impact.

This could be an interesting part of the Apple story in fiscal year 2017
Although Apple's main priority should be to build a compelling enough product with iPhone 7 to get its flagship products back on a growth path, I believe that lower-cost iPhone 6/6 Plus models (to go along with price-reduced iPhone 5s models) could help Apple grow in markets where it simply doesn't have much of a presence.

We'll see what Apple does come September. 

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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