Apple expected to unveil iPhone to drive emerging market sales

CUPERTINO, California, Sept 10 Tue Sep 10, 2013 3:00am EDT

CUPERTINO, California, Sept 10 (Reuters) - Apple Inc is expected to introduce a cheaper version of the iPhone on Tuesday, bringing one of the industry's costliest smartphones within reach of the masses in poorer emerging markets.

The world's most valuable technology company, which many expect to unveil an iPhone 5C in several colors alongside the latest high-end iPhone 5S, is trying to beat back rivals like Samsung Electronics Co Ltd and Huawei Technologies Co Ltd in markets like India and China, where it is fast losing ground.

Wall Street approves of the move to offer a more basic version of the device, although some investors warned initially it will dilute margins and potentially tarnish a brand that has been linked to premium users since its 2007 inception.

Now, they hope a bigger emerging-market presence can help reverse a 29 percent fall in the company's share price since it hit a record high of $702.10 a year ago. The selloff was fueled by fears of slowing growth and a perception that its ability to innovate and shake up industries was dwindling.

Industry observers said Apple has not turned out a category-defining electronic device since late co-founder Steve Jobs made a bet on the iPad in 2010. Speculation revolves around a smartwatch - along the same lines as Samsung's recently introduced Galaxy Gear - or some sort of TV product.

But analysts said neither is likely to generate numbers anywhere in the neighborhood of the iPhone, which supplies half of Apple's revenue and is its highest-margin product.

"Apple needs to demonstrate in the coming months that it has other product lines which can start to make up for slowing growth and falling margins in (the) iPhone and iPad," said Jan Dawson, chief telecoms analyst for Ovum Research.

"That's a tall order."

More immediately, Apple will get a boost if it succeeds in enlisting China Mobile Ltd in its iPhone network. For the first time, the company will host media in Beijing just nine hours after its Cupertino, California launch, spurring speculation it will announce a distribution agreement with the Chinese carrier.

The world's largest wireless carrier serves more than 740 million users and is perceived as more amenable to carrying the popular smartphone now that profit and subscriber growth are decelerating. Net income grew just 2 percent in the April to June quarter.

And smaller rivals China Unicom and China Telecom - both of which already sell Apple's gadget - are making headway against the market leader.

Separately, Japan's largest carrier, NTT DoCoMo, is expected to begin selling it as soon as this fall, other sources said.

One key question is whether Apple will sell its cheaper iPhone 5C also in more mature markets like Europe or the United States - heightening the risk that it will begin cannibalizing sales of the flagship 5S.

Globally, the market for cheaper smartphones priced around $300 - the iPhone 5 now starts at $649 without a contract - could grow to 900 million units by 2015, Bernstein Research analyst Toni Sacconaghi estimated. Assuming Apple manages to capture just 10 percent of that market, the 5C could bring in revenue of $30 billion annually.

"The only real potential to surprise investors (on Tuesday) seems to be in the scope and velocity of a new China strategy, and any new features within iOS 7 and fingerprint scanner technology," said Barclays analyst Ben Reitzes.

"Since it missed the trend toward larger screened phones and seems poised for only incremental iPad improvements, we believe that Apple needs to prove it can innovate in software and services."

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