Cheaper iPhone could, paradoxically, increase Apple’s margins

Credit: Ferry Passchier

While the markets may worry about the effect of cheaper products on Apple’s still-enviable margins, those concerns may be misplaced in the case of a low-cost iPhone, reports Fortune.

Not to fear, writes Morgan Stanley’s Katy Huberty in a note to clients Monday. According to her calculations, a lower-priced iPhone should — paradoxically — raise those margins.

The way she sees it, if Apple lowers the cost of owning an iPhone, more people will buy them. And because the profit margins on even a lower-cost iPhone are so much higher than the margins on Apple’s other products, the net effect will be to lift the company’s gross margin … 

There are, of course, some ifs and buts in there. Huberty is basing her numbers on a $399 price-point, which is higher than some of the estimates we’ve seen, and the figures could change depending on the degree of cannibalisation of existing models, but she does point out that the effect is seen at any price over $349.