Can a Low-Cost iPhone Save Apple?

Actually, does Apple need saving in the first place?

If the following two figures point to a company in poor shape, I don't know if I could bear to look at a healthy one:

  1. $137 billion in cash, cash equivalents, and short- and long-term marketable securities
  2. Zero debt 

Apple's stock price has been tumbling, from a high of over $700 a share just four months ago, to around $450 as of this writing.

What has made investors so nervous?

Perhaps it's because Apple worked itself into such an enviable financial position mainly on the strength of one product -- the iPhone. Sales of the iPhone accounted for 49% of Apple's 2012 fiscal year (ending Sept. 29, 2012) revenue of $156.5 billion. Even more critical, this past August, Business Insider estimated that the iPhone produced almost two-thirds of Apple's profits.

That's a lot riding on one product.

If one still doubts the iPhone, above all other Apple devices, is Apple, consider that sales of Macs (desktops and portables), the computing devices that started it all for the company, totaled just 17% of Apple's 2012 sales - a yearly gain in revenue of 7% compared to the iPhone's 71%.

One problem is that even though the iPhone has been selling at a record pace, it is no longer the only super-duper smartphone on the planet. It isn't even the world's best-selling smartphone anymore. Samsung's Galaxy S III is.

Another has to do with the smartphone market being on the verge of splitting into two main price segments, according to a study from Informa Telecoms & Media, and Apple will have to decide when -- not if -- it will begin producing iPhones at a lower price point.

The emerging marketplaces of the world -- places where carriers do not generally offer cell phone subsidies -- are powering a growing demand for more affordable smartphones. So far, producers of lower-priced smartphones running Google's Android OS, such as Samsung, Huawei, ZTE, and many so-called white label brands, are scooping up the first-time smartphone buyers.

It's no surprise, then, that during Apple's earnings conference call this week analysts were curious about Apple's iPhone pricing plans.

This from Kathryn Huberty of MorganStanley: "It's clear that iPhone 5 did incredibly well in the U.S. ... but ... are you confident that you have all the right price points and screen sizes to fully capture the non-U.S. demand for iPhone specifically?"

And from Chris Whitmore of DeutscheBank: "There seems to be a lot of demand at lower price points for the iPhone. Why not get more aggressive at lower price bands and move down-market in the iPhone business?"

And then this from Toni Sacconaghi of Sanford Bernstein: "Realistically, how does Apple hold share given that the market segment that -- and price point that you play in is expected to grow a lot slower and you have pretty dominant share in that high-end?"

Apple CEO Tim Cook's answer to that one: "We could put the Apple brand in a lot of things and sell a lot more stuff, but that's not what we're here for. We want to make only the best products."

That would suggest that Apple is not interested in putting out a cheaper but less-featured product, but then Cook made this analogy with Apple's iPod pricing evolution: "I think we've had a great track record here on iPod of doing different products at different price points and getting a reasonable share for doing that. And so, one doesn't -- I wouldn't view these things as mutually exclusive as some might."

Quality and price -- not mutually exclusive -- hmmmm?

Well, maybe then Apple is not ignoring the pricing elephant in the room. With so much for Apple riding on that iPhone, not making plans for taking the low road would seem a costly oversight.

There's no doubt that Apple is at the center of technology's largest revolution ever. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and more importantly, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

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Fool contributor Dan Radovsky has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. 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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