Apple Faces Pricing Pressures on iPhone

Apple ( AAPL) may be forced to lower iPhone prices over time due to competitive pressures.

Apple competes with Research in Motion ( RIMM) , Motorola ( MOT) and Nokia ( NOK) in the mobile phone market.

Despite increasing competition in the smartphone sector, iPhone pricing remained strong at an average of $595 for the quarter. This compares well with the $593 average price for the whole of 2009.

We have revised our model to bring our iPhone pricing forecast for 2010 in line with the 2009 number.

Although Apple has managed to keep average iPhone pricing between $550 and $650 for the past six quarters, we believe that Apple can't sustain these high prices for long. We currently estimate that iPhone pricing will decline from $593 in 2009 to $413 by the end of the Trefis forecast period.

iPhone sales account for nearly half of Apple's stock value, according to our analysis. You can drag the line in the chart below to create your own estimate for the impact of changing iPhone prices on Apple's stock value.

In the unlikely event that the current average price holds over the long term, it would create a 20% upside to the $337 Trefis price estimate for Apple's stock. Below we explain why we think Apple will be forced to reduce iPhone pricing.

RIM, Motorola and Nokia smartphones have much lower price points compared to the iPhone. Unlike Apple, RIM and Nokia have steadily cut their smartphone prices over the past few quarters, while introducing new features that make their phones increasingly competitive with the iPhone.

The table below compares average prices of Apple, Nokia, Motorola and RIM smartphones since the first quarter of 2009.

AT&T ( T) pays Apple a subsidy of around $400 per iPhone. In an earlier article , we noted that the wireless giant will likely press Apple to reduce this subsidy after AT&T's exclusive license to sell the iPhone expires next year. This would mitigate AT&T's risk of losing subscribers to rival Verizon ( VZ) if Apple decides to sell iPhones through Verizon's network from 2011 onward.

A lower AT&T subsidy would put pressure on Apple to reduce iPhone pricing in order to make the device more competitive with other smartphones.

You can see the complete $337 Trefis Price estimate for Apple's stock here .

Trefis is a financial community structured around trends, forecasts and insights related to some of the most popular stocks in the U.S.

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