Asymco

Calling something absurd is not an argument. The "good" reasons for moving down market with a classy product which doesn't disrupt your existing premium product is to bring in a significant proportion of the huge numbers of people who cant yet afford the premium smartphone into Apple's ecosystem. You don't want to cede them to a competitors ecosystem. These people exist in the first world and developing countries in very large numbers. Getting those people into the Apple economy is important IMO.

This doesn't mean Apple has to race to the bottom, they won't and shouldn't. They always should try to stick to the mantra of not entering a market segment unless they have something to contribute. They are fully able to produce a classy product that costs less but is desirable and doesn't steal from their existing product customers the way the white plastic macbook did for a long while in the macbook lineup or as the iPod Nano and even the shuffle did for music players.

Indeed the good/better/best of the iMac and MacPro range is a similar strategy.

In terms of the iPhone this would be easy to accomplish. Using 3gs components and wrapping in it a fun and desirable housing would not disrupt the iPhone 4/5 sales points but bring more people into the Apple ecosystem. Using older parts, lower RAM, a quality screen but not a retina quality screen and perhaps a slightly lower quality battery could possibly accomplish this. In a new Jonny Ives body this could be a very nice inexpensive product. I don't see the downside to this. You apparently do but you haven't spelled out anything other than your contempt for the idea. How about supporting it with a business argument? I'll listen.

Well in my earlier reply to you I said that they should repackage the 3gs so yes what I described was the 3gs. The only difference between what you say and what I say is that Apple should build a new exterior for the 3gs to market it next year.

I don't understand why you make this an either/or situation. They can do what you describe and sell a repackaged 3gs in markets. Anyway, time will tell.

Apple already sells a low-end iOS device, the iPod Touch, through its Apple Stores for ~$180 that some customers are using in conjunction with an app like Skype as a WiFi-only mobile phone. The device just needs a ~$10 radio chipset and antenna to support cellular service. Most low-end Android phones sell for between $100 to $150, (e.g T-Mobile/Huawei Comet, LG Optimus). Selling the equivalent of a cellular-capable iPod Touch for ~$200 would reverse Apple's flagging iPod sales without impacting their iPhone margins. Meanwhile, they would keep these customers in their very profitable iTunes ecosystem.

Apple learned a very valuable lesson when it went solely for profit margins over sales with its Macintosh computers. As they lost market share to PC vendors, they lost the volume discounts on their purchased components, squeezing the margins they were trying to protect. The Macintosh's unique processor and bus exacerbated this problem. After Microsoft copied the Mac's UI and most of its ease of use, Apple largely lost the market it had created — along with the profits. The small premium the Macintosh commanded at that point basically covered the higher costs of its components.

Considering Apple's pricing on its Macintosh and iPod product lines, one would expect Apple to cover three general price points for the iPhone. Macintosh starts at ~$900, (MacBook refurbished or with its education discount) and continues up to ~$2700 (customized high-end) with the typical sale around ~$1600. The iPod starts at ~$130 (refurbished 8GB Nano) — excluding the functionally crippled Shuffle — and continues up to ~$400 (64G Touch) with the typical sale around ~$230. One might therefore expect a low-end iPhone at 1/3 the price of Apple's high-end phone. Assuming some high-end iPhone price erosion to ~$700, this would imply a low-end iPhone at ~$230 with the bulk of iPhone sales at ~$450, basically the price of an updated, A4 processor iPhone 3GS.

This whole argument is off-target. The key to this (and many other things that Apple is doing Horace) is Apple's timing of its product replacement/market disruption activities. Why compete for market share when you're doing fantastic grabbing profits? Clearly the amount of potential profit being left on the table is minor, yet lets them avoid all of the hassles that accompany monopoly situations.

In my opinion, the next iPhone product announcements will see an iPhone 5, an iPhone 4GS(sic), and probably a reconfigured iPhone 3GS for the pre-paid market. I see no advantage in going further down the market. The frugal engineering approaches can only take you so far, and why compete where there's clearly little or no profit to be made???

Extending product life takes you further down the learning curve, but it doesn't really help you much because the curve is effectively flat at that point.

Apple's marketing/manufacturing strategy quite clearly is to disrupt the market through new product introductions as soon as they get down to the flat part of the learning curve. (It's been that way for a long time even if Tim C, Phil S and Steve J are the only ones that really understand the implications.) That never gives the competitors a chance to catch up unless a rather different technology becomes available.

Indeed, I believe that Samsung remains in the race because of Apple's volume purchases of several components forces and allowed Samsung to achieve learning curve production in advance of pricing changes with Apple, and thus match Apple's component prices a quarter earlier than the other competitors.