CUPERTINO, California (Reuters) – Apple Inc is expected to introduce a cheaper version of the iPhone on Tuesday, bringing one of the industry’s costliest smartphones within reach of the masses in poorer emerging markets.
Chief Executive Tim Cook kicked off the event at the company’s Cupertino headquarters in the morning, outlining how he expects Apple to ship the 700 millionth device – an iPhone or iPad – based on iOS mobile software sometime next month. He and other executives will take the wraps off the new iPhone later on Tuesday.
The world’s most valuable technology company, which many expect to unveil the lower-priced iPhone 5C in several colors alongside the latest high-end iPhone 5S, is trying to beat back rivals like Samsung Electronics Co Ltd and Huawei Technologies Co Ltd in markets like India and China, where it is quickly losing ground.
Wall Street approves of the move to offer a more basic version of the device, although some investors warned initially that it would reduce margins and potentially tarnish a brand that has been linked to premium users since its 2007 inception.
Now they hope a bigger emerging-market presence can help reverse a 29 percent fall in the company’s share price since it hit a record high of $702.10 a year ago. The selloff was fueled by fears of slowing growth and a perception that Apple’s ability to innovate and shake up industries was dwindling.
The new iPhones, coupled with a belief that Apple will announce a deal with the world’s largest carrier in China, have spurred investors to build bullish share and options positions in the company over the past two weeks.
Also sparking Apple’s upward momentum was hedge fund billionaire Carl Icahn‘s revelation last month that he had taken a large position and was pushing for the company to expand its program of share buybacks.
He has said the stock may rise to as much as $700 if Chief Executive Officer Tim Cook pushed for a larger buyback. The shares were down 0.5 percent at $503.64 in morning trading. (Reuters Insider video: The big money betting on Apple http://link.reuters.com/seg92v)
Industry observers said Apple had not turned out a category-defining electronic device since late co-founder Steve Jobs made a bet on the iPad in 2010. Speculation revolves around a smartwatch along the same lines as Samsung’s recently introduced Galaxy Gear, or some sort of TV product.
But analysts said neither was likely to generate numbers anywhere in the neighborhood of the iPhone, which supplies half of Apple’s revenue and is the company’s highest-margin product.
“Apple needs to demonstrate in the coming months that it has other product lines which can start to make up for slowing growth and falling margins in (the) iPhone and iPad,” said Jan Dawson, a chief telecoms analyst for Ovum Research. “That’s a tall order.”
More immediately, Apple will get a boost if it succeeds in enlisting China Mobile Ltd in its iPhone network. For the first time, the company will host media in Beijing just nine hours after its Cupertino, California, launch, spurring speculation it will announce a distribution agreement with the Chinese carrier.
The world’s largest wireless carrier serves more than 740 million users and is perceived as more amenable to carrying the popular smartphone now that profit and subscriber growth are decelerating. Net income grew just 2 percent in the quarter that ended in June.
Separately, Japan‘s largest carrier, NTT DoCoMo, is expected to begin selling it as soon as this fall, other sources said.
One key question is whether Apple will also sell its cheaper iPhone 5C in more mature markets like Europe or the United States, heightening the risk that it will begin cannibalizing sales of the flagship 5S.
Globally, the market for cheaper smartphones priced around $300 – the iPhone 5 now starts at $649 without a contract – may grow to 900 million units by 2015, Bernstein Research analyst Toni Sacconaghi estimated. Assuming Apple manages to capture just 10 percent of that market, the 5C would bring in revenue of $30 billion annually.
“The only real potential to surprise investors (on Tuesday) seems to be in the scope and velocity of a new China strategy, and any new features within iOS 7 and fingerprint scanner technology,” said Barclays analyst Ben Reitzes.
“Since it missed the trend toward larger screened phones and seems poised for only incremental iPad improvements, we believe that Apple needs to prove it can innovate in software and services.”