Apple Needs a True Low-End iPhone to Help Revive Growth

Apple has long relied on China and the iPhone for growth. As those revenue sources continue to falter, the company must explore new regions and products to get back on track. Also: Apple’s next big thing is an on-device large language model; iPad retail availability dwindles; the Vision Pro loses steam; and iOS 17.5 includes a change that could upend the App Store.

Last week in Power On: The AI device revolution isn’t going to kill the smartphone.

The Starters

Apple Inc. is taking arrows from every direction. Regulators and lawmakers are scrutinizing the company in multiple countries. It’s playing catch-up in artificial intelligence. And it’s struggling to find new product categories, as the recent death of the car project showed.

Perhaps even more alarmingly, two traditionally reliable parts of its business are in the doldrums: the iPhone and China.

After a short-lived resurgence during the holiday period, iPhone sales are expected to drop again when Apple reports its latest results. That will drag down overall revenue by about 5%, according to Wall Street estimates, marking the fifth decrease in the past six quarters. Unit sales are also down, with IDC projecting a 10% decline for the iPhone in the first three months of the year — despite the overall market growing 8%.

The iPhone sluggishness has hurt sales in China, but there are other concerns there as well. Bans on foreign brands in government workplaces, along with a consumer embrace of homegrown Chinese technology, have clouded Apple’s prospects. During the holiday quarter, the company’s China sales fell 13% — their worst decline in about four years. Analysts have predicted another drop for the latest quarter, which Apple will report on May 2.

The good news for the company is that current iPhone users in China aren’t switching en masse. The problem seems more about attracting new people to the Apple product ecosystem — and getting existing users to upgrade sooner.

It’s no secret that the pace of iPhone upgrades has slowed in recent years. There are many reasons for that: a lack of old-school carrier subsidies, rising phone prices, a shaky economy and the fact that the world is still pulling itself back together after the Covid pandemic. But it’s also clear that Apple is giving consumers less reason to upgrade.

Let’s face it: Apple’s flagship product hasn’t changed all that much since the iPhone 12 was released in 2020. And, before that, there hadn’t been any major upgrades since 2017. The days of getting a big iPhone revamp every couple of years are very much over.

To make up for that, Apple has gone all-in on services and accessories. Though iPhone users may not upgrade their smartphone every year or two, they still may spend a few hundred dollars a year on services, apps and AirPods. Perhaps they’ll even spring for an Apple Watch. When that customer finally gets around to buying a new iPhone, that’s just the cherry on top.

But even that strategy is reaching its limits. Sales growth has ground to a halt, and it seems clear that something needs to change.

What can Apple do? The most obvious answer is a major new product category, but there’s nothing coming in the near future. The company spent a decade and $10 billion dollars developing a car that will never see the light of day. It spent eight years and many billions more creating the $3,500 Vision Pro, a device that won’t become a major moneymaker for years. Until Apple can produce a lighter-weight model with a less intimidating price tag, the headset will remain a niche product.

But I do think there’s way to revive growth without creating an entirely new device. The company’s best course of action might be developing a cheaper version of the iPhone and making a renewed push into emerging markets.

Ever since the original iPhone went on sale, there have been calls for a less expensive model. But it’s not something Apple has pursued aggressively. Its first attempt at making the device more affordable was cutting the price of year-old models by $100 when new versions debuted. Apple then rolled out the iPhone 5c in 2013, but that model was mostly just the prior version wrapped in colorful plastic — at the same $100 discount.

Apple tried again in 2016 with the iPhone SE. The $399 price was an improvement — hundreds of dollars less than the higher-end models — but the design soon became outdated. Today’s SE costs $429, which isn’t much of a bargain considering its lack of features. Chinese brands like Xiaomi, Transsion and Oppo are offering models with bigger screens and multiple cameras for $150 a pop.

Next year, Apple is planning to upgrade the SE, moving to an all-screen design that makes the device look more like a modern smartphone. But with a faster chip and premium materials, you can bet the price will stay well above $400.

If Apple wants to get serious about emerging markets, it should develop a an iPhone more in the range of $250. Now, that’s not something Steve Jobs would probably do, but going downscale could be what the company needs right now.

Apple could get the cost down by using an all-screen LCD approach — rather than the costlier OLED display on current iPhones — and reduce the number of cameras. The device would sport an older but still capable chip, and perhaps a plastic shell (that still retains Apple’s industrial design). And the company could limit sales of the phone to emerging economies.