Apple bitten by cheap smartphones

The branding may be more modest, but it's all about delivery on performance – and of course the price.

So my first ever smartphone purchase, just four weeks ago, was a Dh900 Moto G – Google’s budget offering, manufactured by the recent US$12.5 billion acquisition Motorola Mobility, since offloaded to Lenovo for $2.91bn.

I fell in love – and not just by using Tinder. My new gadget does everything I could want a smartphone to do. It’s a beautiful, sleek black machine, with almost identical functionality to an iPhone, excepting a few bells and whistles like the iPhone 5S’s biometric fingerprint scanner. After all, who needs thumbs when you’ve got passwords.

But the best part of the wedding was the dowry – my phone was a third of the price of an iPhone 5S.

The numbers tell me I’m not alone. Apple was the slowest growing manufacturer in a billion-unit industry – hardly a pitiable place to be, according to data from IDC. It grew its shipment volumes by a mere 12.9 per cent last year, compared to 42.9 per cent for South Korean giant Samsung, and 67.5 per cent for the Chinese firm Huawei.

And the real growth is happening at the bottom of the price range, as smartphone use grows in emerging markets. The tech consultants ABI Research predicts that about half of all smartphone sales will be of low-end handsets by 2018.

Investors and analysts were keen for Apple to introduce a lower-end phone, hence the iPhone 5C. But its sales have been disappointing, with its high price point meaning it retails at a premium over most Android phones. In China, sales of the 5C are about a sixth of 5S sales, according to the Chinese analytics firm Umeng – despite the fact that the ‘C’ probably stands for China.

Indeed, investors have several times raised the 5C’s prospects with Tim Cook in earnings calls, only to be rebuffed by the chief executive’s trademark brand of unquenchable enthusiasm. From these calls, it’s clear that Mr Cook thinks the 4S is Apple’s entry level phone, not the 5C. This might come as a surprise to Apple watchers.

A discounted 8GB 5C went on sale in some markets last month, in a bid to prevent cheaper manufacturers from trumping Apple. But it will cost around $660 in China, which, at Dh2,400, is still more than twice as expensive as my 16GB Moto G.

Apple has always depended on its trend-busting and preference-shaping product line, which combines market-leading elegance and market-leading functional advantages.

But good, cheap phones, like the Moto G, are challenging the second of these unique selling points.

Once, low-end phones had counter-intuitive user interfaces, operating system vulnerabilities, and didn’t have access to cloud services or app stores. Android has changed that, and now our expectations of what a cheap phone can do have dramatically shot up.

And it’s that change of expectations that ought to be lethal to the iPhone – consumers may well re-evaluate paying so much more for a top-end product if a mid-range product that’s very similar is also available.

A taste for irrational luxury can do wonders for your share price – hence why handbag manufacturers like LVMH, on the Paris Euronext, has a price-to-earnings ratio (19.47) higher than banks like Société Générale (18.56) or BNP Paribas (15.20), which trade on the same exchange.

But Apple isn’t in the handbag business.

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