Apparently both Apple Inc. (NASDAQ: AAPL) and Nokia Corp. (NYSE: NOK) have set a strategy to make more sales into the lower end of the global smartphone market. That could put each in a position in which margins shrink, and an increased reliance on these third world nations may damage the profits of each company indefinitely.
The Wall Street Journal reports:
Nokia Corp. launched new Windows smartphones in the mid- and lower-range price segments in a bid to boost its sales even as its main competitors are releasing a slew of higher-end devices.
More than four years after it started selling iPhones in India, Apple Inc is now aggressively pushing the iconic device through installment payment plans that make it more affordable, a new distribution model and heavy marketing blitz.
The installment plan may or may not harm Apple’s margins now, but it does cheapen a brand the success of which has been its appeal as a maker of premium products. Now, at least in India, people toward the low end of the spectrum can buy an iPhone.
The tightrope these companies have to walk is dangerous. Each needs to have success in the developed world because smartphone markets in places like the United States, Europe and Japan have matured. The unfortunate truth for both Apple and Nokia is that their positions at the top of the industry in the developed world — Nokia’s long ago and Apple’s more recently — have been undercut, particularly by the amazing success of Samsung. As Apple and Nokia struggle with erosion in the highest end sector, they are basically forced to look elsewhere for unit sales.
Apple in particular is in a difficult bind. Dominance in the bottom end of the global market was never its goal. There was too much money to be made at the high end. Carriers happily paid premiums for the iPhone. Apple’s market share was unchallenged. Margins on the iPhone were supposed to stay extremely high forever.
Now, Apple gets to join badly wounded giant Nokia to scrounge around countries where the potential for high profits does not exist.