$99 iPhone Coming

Apple will start selling a cheaper, ‘entry-level’ iPhone sometime this summer, for around $99 after subsidy, according to “checks,” RBC analyst Mark Abramsky said in a note this morning.

  • The main cost reductions would come from fewer features — not a crappy ‘iPhone nano’ or something without a multi-touch screen. Abramsky thinks it might have a lower-resolution camera, no 3G Internet access or GPS, and a cheaper data plan (~$15/month) with a usage cap. We agree that lowering the monthly bill would help drive iPhone sales, but carriers won’t be thrilled.
  • Meanwhile, the iPhone 3G will get feature upgrades, such as a better camera, video capabilities. (See chart below.)
  • He thinks Apple could sell 20-30 million of these cheaper iPhones in fiscal 2010, boosting Apple’s smartphone market share to almost 20%.
  • Cheaper iPhone will eat into iPhone 3G and iPod sales. And a lower subsidy and lower margins means Apple will have to sell three times as many to make the same gross profit from one iPhone 3G. He expects fiscal 2010 iPhone gross margins to shrink to 35%-37% from 50%+.