Will Apple follow the broader trend of smartphone price declines?

Average iPhone prices would decline from $657 in 2014 to $604 in 2018

In the previous part of this series, we discussed how Microsoft (MSFT) would start selling smartphones and tablets running its software at below $200 and follow the broader trend of a smartphone pricing decline. We also mentioned that only Apple (AAPL) has never introduced a new iPhone at a lower price, as it believes in catering to the premium market. However, will Apple continue to abide by its policy? According to a report from IDC, and as the chart below shows, Apple could slash the average prices of the iPhone from $657 in 2014 to $604 in 2018. The report also predicts that Google’s (GOOG) Android and Microsoft’s Windows Phone would follow the same trend, with their average smartphone prices settling down to around $200 by 2018.

Will Apple follow the broader trend of smartphone price declines?

Historically, Apple has avoided drops in its iPhone pricing

In mature markets like the U.S., Apple sells the iPhone at a highly subsidized price through telecom providers such as Verizon (VZ) and AT&T (T). However, the trend of selling smartphones at subsidized prices hasn’t picked up in emerging markets like China and India, so Apple continues to sell iPhones at $600+ price points. Due to the affordability factor, Apple has faced issues in emerging markets with its iPhone sales.

Apple has started to slash the prices of older iPhone versions in emerging markets

Lately, Apple has started to change its strategy towards emerging markets by cutting down prices for older iPhone models. It slashed the price of the iPhone 4S to capture the low-income group in emerging markets. Although the cheaper iPhone 4S gained popularity in emerging markets, Apple reported that its overall average selling price for the iPhone declined from $637 in Q4 2013 to $596 in Q1 2014—a big decline of $41. So we’re already seeing the broader trend of smartphone price declines with Apple as well.