The following quotes come from a new report on the iPhone from Bernstein Research: “Apple could conceivably sell iPhone hardware at a substantial loss while generating greater profit per iPhone than it does from the highest end iPod…..this potentially gives Apple a storng incentive to price the iPhone aggressively to drive sales, even at the expense of cannibalization of the iPod business where ASPs and GMs (gross margins) are notably lower.”
I don’t mean to flippant or a bull with my head in the sand but this analysis is hardly consistent with all the doom and gloom from last week when the iPhone price cut supposedly indicated the product was a flop, or as Tero Kuittinen of RealMoney.com called it, “a platinum turkey.” On the day the price cut was announced I wrote, “since we don’t know how the revenue share works with AT&T on iPhone sales and subscriptions, the financial impact of a price cut, particularly if it stimulates demand, is hard to gauge, even more so with the deferred revenue accounting.”
Capturing the bearish spin that dominated coverage of the price cut, the next day Bernstein issued a bearish report on the price cut titled, “Big iPhone Price Cut and iPod Touch Product Positioning Both Raise Meaningful Questions.” To Bernstein’s credit, as usual they completed thorough analysis to answer the “meaningful questions” and published the results even though they appear to conflict with their initial assessment. This is a good example of why Bernstein’s research is highly valued on Wall Street.
I know Apple is way overanalyzed and I am more guilty than most in that regard. I also know that we all tend to talk our book. Again, I plead guilty. But the universal assumption that the price cut represented a problem and the skepticism of Jobs statement that Apple really wanted to accelerate sales and establish the iPhone ecosystem in the US as quickly as possible appears to have been misplaced. Or at least wrongly or insufficiently analyzed.