Can Apple Still Win With Lowered Margins?
Wall Street has a tradition of underestimating Apple (NASDAQ:AAPL) and the company will do just fine if it were to launch a rumored cheaper iPhone targeted at emerging markets, according to Gamco Investors’ Howard Ward.
“Wall Street underestimated the iPod when it came out, it underestimated the iPad, the iPhone, the iPad mini. Every time these products have been introduced, the Wall Street has underestimated their potential,” Ward, the chief investment officer of growth equities at Gamco said on Bloomberg Television’s “Bloomberg Surveillance.”
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And while the cheaper device may crimp on Apple’s traditionally high margins, the company was in a position to afford to do so, Ward added. “Whatever happened to that economic theory that companies are supposed to produce until their marginal costs equal their marginal revenues — well, Apple is nowhere near that,” he said. “Look at the dichotomy here between Apple and Amazon (NASDAQ:AMZN). Amazon gets rewarded for having almost no margins, whereas Apple, or any other company in technology, gets crucified when margins go down.”
Not only will the iPhone maker get a bigger presence in emerging markets with this strategy, it will also be able to eventually convert consumers of the new device into buyers of higher-end Apple products, Ward said.
“Apple’s reached a point where they can’t ignore the largest segment of the market, which is the emerging markets, where you have billions of people,” he said. “If they can lock them into the Apple family, invite them in, get them to use Apple products, get them to buy additional products on top of the phone, and then, as their incomes rise, a higher-priced phone.”
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