Apple In Trouble If U.S. Phone Market Follows France, India, China

Apple became the largest company in the world by market capitalization on the strength of innovation in mobile phones. Fortunately for Apple, the last several years there has been a consumer trend to treat their phones as status symbols or fashion accessories. This kind of consumer behavior has also been the primary reason for Apple’s success in China. For many newly rich Chinese, flaunting the latest iPhone has been a way to show that they have arrived.

What about a possible inflection point that is arriving when most consumers will consider their phone simply as a utility device and not as a fashion accessory? Apparently in France, the inflection point has already arrived. France Telecom , one of the largest carriers in Europe, has already concluded that going forward selling a $600 device such as an iPhone to consumers will be difficult. Stephane Richard, the CEO of France Telecom, recently stated that consumer behavior is changing and there are fewer early adopters. As far as fashion sense is concerned, the French have never been slouches.

China is the second most important market for Apple. Tim Cook has repeatedly stated that China may become the biggest market for Apple. In terms of disposable income and demographics as it relates to phones, the Chinese are very similar to Indians. Apple has been focused on a strategy of promoting iPhone 4 to the Indian market. The lower priced iPhone 4 is simply more affordable for many Indians. In India, iPhone 5 sells for 45,500 rupees. Consumers have been forsaking iPhone 5 and buying in droves Samsung Galaxy Grand. Galaxy Grand is roughly comparable to iPhone 5 but sells for only 21,500 rupees. About 54 rupees equals one dollar.

Galaxy Grand is based on Google Android. Nokia low end smartphones based on Microsoft Windows are also making good progress in India. Even though BlackBerry bulls like to tout that the initial inventory of Z10 was sold out quickly in India, Z10 will suffer in India because of the change in consumer behavior.

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To compete with Samsung, Apple has been forced to offer a trade-in discount of 7,000 rupees towards a new iPhone 4. It goes without saying that a brand that has to be sold at a discount simply cannot maintain an elite status for long.

Fashion changes and the next fashion will be to treat phones as a utility device. This will be real bad news for Apple. As a result we are reducing our target on Apple to $585.

Write me:Nigam@TheAroraReport.com and follow me here. Subscribers to The Arora Report are long Apple and Nokia.

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