Apple's iPhone Air Could Be a Winner
The latest rumors for the ever-vibrant Apple rumor mill is that Apple is planning to bifurcate its high-end iPhone lines into two lines. The first would be the standard continuation of the traditional iPhone line (perhaps dubbed the iPhone followed by a generational moniker), but the second line would sell under the iPhone Air brand. This is very similar to what Samsung does with its Galaxy S/Galaxy Note lineup.
Great news for Apple shareholders
While some may believe that Apple launching an iPhone Air would simply serve to keep the current Apple customer base, rather than meaningfully expand it, others believe that this serves as an incremental opportunity on top of the existing iPhone opportunity. While it is certainly likely that traditional iPhone buyers will move to the iPhone Air, there could be a meaningful opportunity to gain share from rival Samsung in the U.S., as well as in the Asia-Pacific region.
What's more interesting is that if this rumor is true (which, frankly, seems plausible enough), this is exciting from a revenue-per-unit and, therefore, a gross-margin-dollar-per-unit standpoint. It is very likely that an iPhone Air would command a premium ASP to the more traditional iPhone, so at constant gross margin, sales of such a device would drive hefty profit up. It's hard not to be excited.
The secondary effect -- weakening Samsung
It is imperative that Apple weaken its largest rival, Samsung, by taking as much of the high-profit-margin share of the smartphone market as possible. Not only does this shift more of the industry's profit dollars into Apple's coffers, but it weakens Samsung, as the company would likely take down spending to keep it as a constant percentage of revenue.
Now, that's not to say that Samsung would completely die and fade away, far from it, actually, but it is in Apple's best interest to significantly weaken Samsung as a competitive threat at the high end. Samsung can turn its attention to more aggressively taking share in the low end, where Apple doesn't really want to play anyway.
More Apple products per year
Another interesting aspect here is that introducing an iPhone Air lineup that is separate from the traditional iPhone (but equally high-end) is that Apple would be able to drum up excitement multiple times per year if it follows Samsung's model of two major releases per year. It's a brilliant strategy, and given Apple's keen understanding of how to build a brand and capture customer loyalty, it would not be a surprise to see this strategy implemented in 2014.
Foolish bottom line
Apple is a solid company with a strong brand and deep technical prowess. While the risk of smartphone commoditization is real, if there's any company that can rise above that and run a business with very robust profitability, it's Apple. It will be very interesting to see how market segment share in the high end shifts when, or if, Apple implements this strategy, but it's tough to imagine that it'll be pretty for Samsung.
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The article Apple's iPhone Air Could Be a Winner originally appeared on Fool.com.Ashraf Eassa has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. 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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