Are We Going To See The “$10 iPhone” in 2020? No, the clone of 2010 superphones will probably cost around $20 in 2020

If you remember my famous forecast from year 2010, that if Moore’s Law holds, then someone can clone any superphone of year 2010, and match those specs by year 2020, for the cost of $10. Superphones of year 2010 included the original iPhone 4, Samsung Galaxy, Nokia N8, Blackberry’s Bold, etc. And a superphone back then cost $600 without handset subsidy (ie clean, without contract). Excepting for local taxes and import duties, that price was also pretty well ‘universal’ globally. In year 2010, you’d be expected to pay $600 for a top-line smartphone by a major brand.

To be clear, right from the start, I emphasized, that Apple will not sell us a $10 iPhone in year 2020. I said it would be a clone-phone-maker, probably running Android or possibly one of the low-cost smartphone OS systems that were then in development. But 8 years ago, in year 2010, if you went into a mobile phone shop anywhere, and picked the top model, you’d get roughly the same specs, which were:

3G

Smartphone

Touch Screen

3.5 inch size screen

WiFi

Camera of 5mp

With LED flash

GPS

That was my spec list. If you did that phone today, you are essentially matching an iPhone 4 from year 2010. And that phone was considered a ‘superphone’ back then. A powerful internet-phone on both 3G and WiFi, a ‘real’ camera that was able to capture reasonably good images. A flash that let you take pictures in the dark. GPS for mapping.  And yes, touch-screen obviously. And back in year 2010, a phone screen of 3.5 inches was considered ‘massive’ in its size. Today it is considered ‘tiny’.

MOORE’S LAW

So I applied Moore’s Law to the tech specs of the iPhone 4, in year 2010. And that law said that computer processing power doubles every 18 months. The corollary to Moore’s Law is that the same performance computer tech will cost half, in 18 months. And then I just ran 18-month cycles and cut the price of the ‘iPhone clone’ into half every 18 months.

This said that the price pattern for a new smartphone, matching 2010 flagship smartphones by spec, which cost $600 in year 2010, should cost as follows:

Summer 2010: cost $600 (starting point)

Winter 2011: cost $300 (was achieved)
Summer 2013: cost $150 (was achieved)

Winter 2014: cost $75 (was achieved)

Summer 2016: cost $38 (was achieved)

Winter 2017: cost $19 (is now due)
Summer 2019: cost $10 

And based on this pattern, I boldly forecasted a $10 dollar price for a new smartphone, when sold in year 2020, that (roughly) matched the specs of what once was a superphone, in year 2010. Fair enough. And nicely, this gave us milestones, to see how this forecast was doing. I showed this slide since 2010, with always the latest period highlighted, as we followed how this forecast was turning out:




That forecast held through 2011, 2013, 2014, and even up to Summer 2016. I was able to find a new smartphone in the summer of 2016, that matched (or exceeded) the specs required, in India, for the local price of 2,443 India Rupees which was $36 US dollars. We were 2 dollars BELOW the target price for the forecast. The forecast looked good.

FORECAST NO LONGER HOLDS

Now I have some bad news. The forecast no longer holds. I have searched a dozen countries and phones of hundreds of brands, and cannot find a smartphone that matches those specs, at a price around $19. The nearest I’ve gotten is again in India. A smartphone by the name of Microkey, model E12, (new phone from Nov 2017) is nearly the specs we want. 4.5 inch (larger than required) touch screen Android smartphone, 8 mp camera (better), with LED flash, 3G and WiFi. But this phone does not have GPS. And it is available locally for $1,799 India Rupees. That is $28 dollars, not $19. We have now failed to match the predicted price path. We are 50% above where it should be.

This means, first off, that it is nearly certain, that by year 2020, we will not see anyone (yet) selling a new smartphone that matches the 2010 iPhone 4 in specs, and costing only $10. It looks like we’ll fall short from that amazing price point, BUT we ARE on track for a smartphone year 2020, that costs about $20. And considering the collapse in price from $600, then whether it is $20 or $10 doesn’t really matter. We will have achieved a computer into essentially every pocket, even in the Emerging World.

Note, that the price decline now is proceeding at a slower rate than it has been before. Part of that is the inevitable end to Moore’s Law which some say is upon us, others say will shortly arrive. But in this case, new smartphones costing under $30, we do have the issue of the non-digital elements to the cost of a phone. The plastic casing for the phone is not experiencing a Moore’s Law. Plastic does not become cheaper by half every 18 months. Similarly the battery. Batteries are getting cheaper but nowhere near as fast as Moore’s Law is lowering costs of computing. Also labor costs do not fall by Moore’s Law. The shipping and marketing costs do not fall by the rate of Moore’s Law. So the final non-subsidised non-contract price of a new smartphone model right now, if the bottom end is at $28, only a small part of that price is the electronics of the ‘smart’ and ‘phone’ part. The other elements that do not live by Moore’s Law are now a far larger proportion of this cheap smartphone, than were parts of the original iPhone 4 back in year 2010.

NEW PRICE PREDICTION FOR NEXT 5 YEARS

It WAS a wild ride, for 6 years. We DID match, exactly the predicted price path, up to the summer of 2016. Now that ride has ended. Smartphones are STILL becoming cheaper, but now the price shrinks more slowly. It literally was cut in half every 18 months since 2010, now it seems to be cut by one quarter, every 18 months (ie the price drop rate has fallen into half). This suggests, that going forward, we could expect this type of price pattern at the very lowest end of smartphone prices:

2017 Winter cheapest new smartphone $28

2019 Summer cheapest new smartphone $21

2020 Winter cheapest new smartphone $16
2022 Summer cheapest new smartphone $12
2023 Winter cheapest new smartphone $9

We should prepare for this pattern and now it is likely in year 2020 we won’t find $10 clones of the 2010 iPhone (by tech specs) and instead, that year we’ll find the first phone at $20, roughly matching the specs of our 2010 iPhone. And if this slower rate of price drop continues, then expect the first new $10 smartphone to be upon us around year 2023.

PS obviously we ignore the nonsense fake phone deals that never materialized. Secondly, these will not be ‘as good’ smartphones as what the original iPhone 4 or Nokia N8 or Blackberry Bold etc were in year 2010. The cheap clone ‘superphone’ will be very cheap plastic and may have all sorts of quality etc issues. But I am not considering discounted old models sold at prices to get rid of inventory. I mean it has to be a new model that year, that is sold at a fair price in its market. And while we won’t see the $10 smartphone yet in year 2020 we seem to be getting gosh-darned close to that, at $20. And that the $10 smartphone is likely postponed to year 2023. Still, only 5 years from now....

Even when a precise forecast isn’t coming perfectly to form, I am so happy to be able to revisit old forecasts to see how they are doing. And this one, once again, was a remarkably useful forecast in year 2010, when there were no smartphones really below the $200 level. To be able to give guidance to the industry, that prepare - in a decade, smartphones will cost a tiny fraction of what they were costing back then...

So for the record. I am now shifting my forecast. No $10 iPhone-clones in year 2020 (yet) but the new target is $20. And the $10 iPhone-clone is likely to arrive around year 2023.

Comments

[Abdul Muis]

Tomi,

Your calculation miss because:

1. the upgraded components. Better screen size, better cpu, bigger ram, bigger battery when compared to 2010 flagship. Your theory hold for... if all thing stay roughly the same

2. Inflation. You need to count the inflation of what those $600 worth today.

[Jim Glue]

You did well, Tomi.

[Jim Glue]

Let's ponder how low Apple will go with the iPhone...newly sold. When the iPhone 4 was sold, I don't believe Apple had started keeping older models going longer than a year. So let's say $600 for 2010.

We are down to $349 for the iPhone SE. That's half the price and 5 years newer tech (the chip of the iPhone 6s).

I think by 2020 we could have an iPhone 7 chip equipped iPhone for $249 sold new by Apple.

[E.Casais]

@Abdul Muis

CPU and RAM were not criteria in Tomi's prediction. However, I would agree that both RAM _and_ persistent local storage would be meaningful in such a prospective scenario (and those should be subject to Moore's law).

Regarding inflation: $600 in 2010 are equivalent to $674.47 in 2017 (based on CPI deflator) or $670.64 (based on GDP deflator).

[Mart]

I would guess that its primarily the cost of the IPR keeping the price a little higher - I dont think Tomi took this into account.

[E.Casais]

@Jim Glue

Let us view the situation in a competitive market (Switzerland).

iPhone SE 16GB: CHF 296 (new, unlocked). Well below the $349 you state. The 32GB version is at CHF 315 (still below $349), and only the 64GB version goes up to CHF 399.

By the way, you can still buy an iPhone 5S 16GB for CHF 299, or an iPhone 5c 8GB for CHF 269. Always new and unlocked.

I doubt that Apple would go that down in price for _new_ models, though, since it would drastically reduce its margin -- which neither the Apple leadership, nor the shareholders, nor the stock market would approve.

[Jim Glue]

As long as it's sold new, I count it as new. And I'm sticking to the retail prices at AppleStore.com. I can see Apple going for the $249.00 retail point in the next 2 to 3 years.

[E.Casais]

@Jim Glue

I was perhaps not clear enough. My statement was that Apple would probably not go down so low in price for "_new_ models", meaning newly introduced models, not older models sold new.

As for Apple US prices, we already had that discussion. Because of the peculiarities of the US market, their representativity is questionable.

[Abdul Muis]

@E

And also exchange rate. China RMB & china inflation.

[brushnell]

@Jim

It looks like Apple is trying really hard to shoot itself in the foot.

Apple is talking to ‘government agencies’ about iPhone slowdowns

https://www.washingtonpost.com/news/the-switch/wp/2018/01/31/apple-is-talking-to-government-agencies-about-iphone-slowdowns/

[Abdul Muis]

Samsung posted its Q4 report, showing $61.8 billion earnings and an operating profit of $11.49 billion. That's a 24% and 73% respective increase over last year's Q4.

Samsung Q4 report: strong high-end smartphone sales, decline in the low end

http://images.samsung.com/is/content/samsung/p5/global/ir/docs/2017_4Q_Earnings_Release_Samsung_Electronics.pdf

[Tomi T Ahonen]

Hi Abdul, Jim, E

Abdul - thanks, yeah, good points. As E calculated the inflation, it isn't worth that much but yeah, I could get away with actual $11 dollar phone target currently, say at most $12 year 2020 (at current rate of inflation) and call it still at 10 dollars, but not 16 haha. Still, yeah valid point.

And the fact that the modern cheap basic smartphone has more than the superphones of 2010 is a valid point, most definitely. If someone suggested a flagship smartphone with a 4.5 inch screen and 8mp camera - in 2010 - then against the iPhone with 3.5 inch 'large' screen and matching Nokia N8 camera sensor - that would have justified a current price well above $600, say something nearer $800 back then. That is before we count CPU speed, memory, and the various other sensors and tech now in even basic phones that wasn't there in 2010. True, good points.

Jim - thanks. On iPhone price evolution. I think Apple will continue to expand the price range. Even as X is seen as 'disappointing' by some (now before the final Q4 numbers are out) from a business point of view, doing a $1,000 iPhone was a brilliant strategy (although severely too late, as you'll recall I advocated for that price point from before the original phablet iPhone 6). So on the top end (for now) they likely will hold the price point, and then over time, as their fans and users get used to the price levels of the X range, Apple will do occasional 'nudges' of the price towards $1,050 and $1,100 and above. And why not. They will be also adding super tech to the top model. This will be like major car makers, Mercedes S Class, BMW 7 Series etc.

But I am pretty confident Apple will be lowering the entry level price point (while only mildly lower). This year is rumored to be an update to the 'entry level' model and for that to be launched in the Spring/Summer again. I would expect Apple to lower the price and get to somewhere near $200 eventually for a new model bottom price (And then even lower prices for the 1-year-old models). I do not see any sense in Apple going for cheap phones, pretty much same reason why BMW and Mercedes do not so cheap cars haha (Smart Car excepted, being clearly branded separate from MB). And I think this year with the flat sales of the past 3 years, I think they'll lower the initial 'new model' price for that entry level iPhone. I do think there is still a slice at the lower end, that Apple could gather, and even achieve a momentary about 1 point-worth gain in market share if they executed this new price strategy well. And a gradual push up on the top end, will keep profits healthy (which won't be 'bad' on the low-price model either, only that it will be of course 'worst' in what iPhone models have had, so 'bad' only in the context of Apple astronomical profit levels).

The lack of a proper iPhone successor (iPad, Apple Watch etc) while iPhone sales are flat for 3 years, should be giving concern to top management at Apple. I would see some 'moon shot' experiments that may be developed in-house or may be purchases of promising tech. Could be the iCar or could be something in VR/AR space, etc.

E - thanks for the inflation calculation. Yeah, that won't exactly 'save' me haha, currently it would give leeway for maybe $11 final price and allowing for nearly 3 more years, we'd probably hit $12 for the final price I could justify to 'equal ten dollars' after inflation haha. Not enough to save my prediction haha. (I'm old enough to remember the 'malaise' economies of the 1970s, so I will not be wishing for higher inflation to return haha)

As to CPU and RAM, yeah, they could have been also in the original prediction and they do follow Moore's Law. I wanted to keep my specs VERY limited. Something really simple and obvious. Also something that anyone could instantly 'feel' and see - 3G, WiFi, 3.5 inch smart screen, 5mp camera, flash and GPS. A very simple formula. And I was honestly limited by the size of one powerpoint slide haha. I knew I would want to discuss that original forecast often in late 2010 at my conference speakerships so as I was devising my specific forecast, I also wanted to make sure it fit nicely onto one slide (as you can see it depicted in this article). At that time I hadn't yet noticed, that wow, we can monitor whether this forecast is coming true, along those milestones. I remember that moment happened while I was on stage. I was telling the new forecast story, and then glanced at my slide, looked at the years, and declared spontaneously, that I'll be reviewing this forecast along those milestones...

and then of course did so, always returning to this same slide.

But yeah, I wanted my base specs to be a very limited set. That said, amazing how well we've fit that model. Up to summer of 2016, I literally found every 18 months the EXACT same spec set, with usually one or two items better than predicted (usu screen size and then sometimes price). This is the first time that I both can't match the price AND we go without one of the items in the spec (GPS).

Tomi Ahonen :-)

[E.Casais]

@Abdul Muis

Yes, a calculation based on the terms of foreign trade would be interesting, but I do not have the indices at hand.

I do not expect much differences though; since the global financial crisis of 2007, inflation for finished goods -- whatever measure is taken -- has been subdued.

@Tomi

I agree that RAM is probably not that important -- and CPU even less. On the other hand, persistent storage (whether flash or SD-card) is quite relevant, as it is an explicit factor when buying mobile phones (and for manufacturers, when promoting them).

[Abdul Muis]

@E

1. In the last couple of year, the housing price increase in china is so high, that the worker salary raise is significant.

2. The china yuan (RMB) against dollar, as US$ weakening.

It would be interesting if we can see how much that $600 in rmb in 2010, and do half-half of 18 month in rmb. Than convert it to usd.

[Wayneborean]

All considered I think your forecasting was really accurate. The current prices are off, but that’s not surprising. Every product has a limiting factor on how low the price can go.

What do I mean by a limiting factor?

Remember the original Motorola brick sized mobile? Yeah, the one you could use to break windows with. It shrank amazingly till it hit the lower size limit that was usable.

So now we have a situation where phones are close to the limit of how far the price can drop. As you said the price of cases and other components is slowing the price drop. There’s also Moore’s Law, which now appears to have bitten Intel in the ass. Intel is reported to have issues with the newer process sizes, most especially 10nm, thought the problems appear to have started with the 22nm process, and continued with the 14nm process.

Intel isn’t used very much as the CPU in mobiles, ARM is the heavy hitter there, and ARM CPUs used in the less expensive phones use the older processes from a variety of smaller fabs, though some ARM chips like the Apple A11 use the TSMC 10nm process.

What I’m saying is that there’s a limit to how inexpensive a mobile can be. It may be $10.00, or it might be $11.00, we just don’t know. Heck, it might end up being $5.00, or less than a fancy coffee.

It will be interesting to see where it ends up.

It would be really interesting to see some of the lower end mobile manufacturers hit North America where I live, and whether or not they can shake up the market.

[Jim Glue]

It will be interesting watching the various ways Apple deals with the slowing growth. Just as interesting will be how everyone else is. Already one analyst house has said that 2017 had a decline in total smartphone sales from 2016.

I do not believe any company will ever have another iPhone. Not even Apple. Well, maybe if somebody invents cold fusion. Good news for Apple, is that there is no call for "another iPhone" any time soon. The smartphone is here to stay and Apple's position is secure.

I'm not saying Apple isn't TRYING to come up with the next big thing...I just don't think anything can generate the kind of profits the iPhone did and will continue to do.

What Apple is doing is surrounding the iPhone with profitable (but not iPhone-profitable) products and services. AppleMusic, Beats and AirPods, HomePod, iCloud, App Store, Apple Watch, iPad. Just the services alone are growing fantastically and would be a Fortune 100 company.

Even altogether, those very profitable lines of business don't compare to the iPhone. No product by any other company compares either. All of Samsung's businesses together (Ships, chips, Tv's, Washing machines, etc. etc.) don't make the profits of the iPhone.

If Apple were to capture ALL of the Android smartphone business...it wouldn't add that much percentage wise to the iPhone profits.

Apple's iPhone isn't going away...it's revenues are stable to slightly growing...and the other businesses will carry the growth factor.

[Tomi T Ahonen]

Hi Jim

About that 'one analyst house' that called a decline in smartphone sales. I think you were remembering the news via Canalys. It was not global numbers, that was just China (the largest smartphone market). I don't think there is anyone who was yet called the market to have shrunk in 2017. So far the only analyst to give a total market count for the full year has been Gartner who found 5% growth year-on-year.

Tomi Ahonen :-)

[E.Casais]

@Abdul

I did not understand what kind of operation (your half-half etc) you meant, but here are the conversions for $600 on the 6th August

2010: 4057.28 Yuan
2017: 3988.08 Yuan

The difference is minimal (the Yuan has become 1.74% stronger).

If you include the USA inflation and take $672.56 (half-point between the figures I gave), this returns 4470.37 Yuans on the 2017-08-06.

I took the 6th of August as the summer mid-point, since Tomi started his calculation in the summer of 2010.

At first sight, nothing changes much. Movements of currency, inflation, and production costs seem to have compensated each other.

[Jim Glue]

Thanks Tomi,

Awaiting your quarter and full year numbers. I imagine we will find that there wasn't THAT much growth for the market.

Lee

[Abdul Muis]

@E

Half-half... Tomi using moore's law that every 18 month, price will be half.

You're right.
I thought the china inflation and exchange value to usd were big.

So, it come down to 'upgraded' internal (bigger screen, bigger battery, better cpu)