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Plenty of people around the world want a new iPhone

Aaron Pressman
Plenty of people around the world want a new iPhone

As Apple (AAPL) prepares to launch its newest iPhones next month, the company could see big sales even in emerging-market countries where consumers have lower incomes.

Conventional wisdom says Apple needs to offer a much cheaper iPhone – current models start at around $450 – to succeed in countries such as Russia, India and Vietnam. But hidden amongst the hundreds of millions of mobile-phone buyers in those countries is a sizable and growing base of consumers who value the cachet and quality of iPhones and can afford the price tag, analysts say.

Apple’s market share in less wealthy countries lags far behind its share in countries such as the United States, where more than 40% of smartphone users have an iPhone versus about 50% who use phones running Google’s (GOOGL) Android software. Apple’s high share comes in part from wealthier customers but is also aided by carrier subsidies – which mask the total cost of a phone – and Apple’s prior success with its iPod music player that attracted millions of people to its iTunes store.

In countries including China, India, Indonesia and Malaysia, however, Apple’s market share remains around 10% or less, according to tracking data from Counterpoint Technology Research. And those are among the fastest-growing markets for smartphone sales.

Room to grow

While Apple will never hit the kind of share it has in the United States without cheaper products, it has plenty of room to grow in emerging markets with an expanding number of middle-class consumers, says Ken Hyers, a wireless analyst at Strategy Analytics. The markets are so vast and growing so quickly that Apple, which has sold 164 million iPhones over the past 12 months, doesn’t need to be among the best sellers to still pick up huge sales.

“Apple can honestly expect healthy future growth from emerging markets, even as that growth is outpaced by orders of magnitude by Android in those same markets,” says Hyers.

Apple is expected to unveil two new, larger-screen iPhone models and possibly a smartwatch of some sort at a September 9 event, according to numerous media reports. Apple has not confirmed the reports.

Bigger screens will help Apple attract even more customers away from arch rival Samsung, the only other major player in premium-priced phones for emerging markets, says Peter Richardson, research director at Counterpoint.

“Samsung has been the only credible competitor, but we’re seeing them stumbling before our eyes, “ Richardson says. “That leaves the way wide open for Apple to continue to dominate that segment.”

Samsung has fallen in part due to a flood of cheaper devices that also run the Android system software. Apple, with its own proprietary iOS software and iTunes media ecosystem, is considerably less vulnerable on that score.

“In Vietnam, for example, you see people willing to spend two or three months' salary to buy an iPhone because there is a perception that this is the best,” explains Richardson. “It’s a willingness to pay for the ultimate luxury from Apple.”

Apple has also used a variety of strategies to penetrate emerging markets, including trade-in and installment financing offers and an emphasis on older, low-end models such as the 2011 iPhone 4S and even the year-older iPhone 4. It has also worked to build networks among many small retailers in countries such as India, where that is the primary phone sales channel.

A new deal struck in January with China Mobile, the world’s biggest wireless carrier, gave iPhone sales a boost in that country. Apple CEO Tim Cook said iPhone sales increased 48% last quarter in China. But China Mobile on Thursday announced it was slashing phone subsidies by 38% for the rest of the year due to government pressure. That may put somewhat of a damper on what are expected to be wild sales of the new iPhone model.

Eventually, over the next few years, Apple likely will have to offer some lower-priced products if the company wants to continue increasing sales in the world’s less-wealthy markets.

“Having picked the low-hanging fruit in most major markets, it’s going to have to work harder than ever to drive that growth,” says Hyers.