Apple Doesn’t Need a $250 iPhone (Premium)

Mark Gurman is a trusted source for Apple rumors, thanks to his insider access. But he should leave the analysis to the professionals: The last thing Apple needs is a $250 iPhone that would cheapen this premium brand and hamper revenue growth.

It's not clear what drove Gurman down this editorial path, but he opined at length about this fantasy solution to the problems he says Apple is now experiencing with the iPhone in his Sunday newsletter. But we know from history—not just Apple's but also the history of a particularly relevant me-too competitor—that making a cheap iPhone won't work.

Here's the setup: Thanks to long-overdue regulatory issues in multiple countries, its perceived latest to generative AI, no viable new product categories (a long-time fixation for Apple followers), and slowing iPhone sales, Apple's in a bit of a bind. The company is set to announce its next quarterly earnings on May 2, and iPhone sales are expected to fall for the fifth time in the past six quarters. Gurman believes something has to change.

On the one hand, a bit of hand wringing may be warranted. In the most recent quarter, the iPhone directly delivered almost 60 percent of Apple's overall revenues, but the real story there is a bit more nuanced: Because so much of Apple's other revenues rely on the iPhone, especially Services, it's fair to speculate that far more of Apple's revenues—maybe something north of 90 percent—are tied to this one product.

But on the other, we're forgetting the sheer size of the numbers here. Apple earned a profit of almost $40 billion on revenues of about $120 billion in that quarter, and its two biggest businesses, iPhone and Services, delivered a combined $99 billion of those revenues. Both businesses grew, with Services experiencing double-digit growth.

Yes, IDC just reported that iPhone sales fell almost 10 percent in Q1 to approximately 50.1 million units. So it's reasonable to expect Apple to deliver similar news, albeit from a revenue perspective—on May 2. But a 10 percent drop-off in iPhone revenues when compared to Q1 2023 would put that figure at about $48.7 billion, which is hardly the makings of a disaster. (Most companies would kill for this problem.)

Gurman, IDC, and others blame numerous factors for the current slowdown in iPhone sales, some familiar and long-lasting and some new. China is cracking down on foreign brands. The pace of iPhone upgrades (as with all smartphones) has slowed. There are no more carrier subsidies. iPhone prices keep going up (this one seems self-inflicted). The economy is "shaky," which is more perception than reality. Even COVID, that be-all boogeyman, gets an almost nostalgic call-out. Toss in all the uncertainty not previously—regulatory and legal attention in multiple jurisdictions, Apple's apparently lateness to generative AI, and the company's inability to find major new sources of revenue thanks to the failures of its smart car and VR headset initiative...