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Even top-of-the-range Apple products such as the iPhone 5 were being heavily discounted by electronics retailers as Asian manufacturers undercut western IT companies. Akio Kon / Bloomberg
Even top-of-the-range Apple products such as the iPhone 5 were being heavily discounted by electronics retailers as Asian manufacturers undercut western IT companies. Akio Kon / Bloomberg

China and the cloud are driving down iPhone 5 and tablet prices

Prices of devices such as tablet computers and smartphones are set to fall as Asian manufacturers undercut western IT companies.

This year, prices of IT devices such as tablet computers and smartphones are set to fall as Asian manufacturers undercut western IT companies.

At the end of last year, even top-of-the-range Apple products such as the iPhone 5 were being heavily discounted by electronics retailers in the United States such as Best Buy, Wal-Mart, Radio Shack and Target.

Wall Street analysts from Pacific Crest, Canaccord Genuity, Mizuho Securities, UBS and Jeffries & Co swiftly sliced between US$50 (Dh183) and $100 from their Apple share targets, believing this to be the start of an inexorable drop in IT prices. The US technology investment bank Pacific Crest cut its sales expectations for Apple from 174 million devices to 151 million for this year, and from 181 million to 161 million for 2014.

Apple has been forced to adjust its pricing policy in the face of growing competition from rivals such as South Korea's Samsung and China's ZTE, which this year intends to boost plans to take the US smartphone market by storm with its lower-priced products.

ZTE is expected to launch a tablet early next month that will sell for $99 in America. ZTE's seven-inch Optik tablet will compete directly with the market leaders, offering features such as two high-definition cameras.

According to the research company Frost & Sullivan's "yearly sectoral analysis on the telecommunications market in the Middle East and North Africa", ZTE also has a strong hold in the Arabian Gulf countries and is set to extend its sales elsewhere in the region this year.

As even upmarket western products such as the Apple iPhone 5 and iPad tablet computers are now routinely manufactured at a low-cost in countries like China, pressure to cut prices is set to continue throughout this year and beyond.

"Most of the electronics have been built in Asia for years now. The discounts you are seeing from Wal-Mart are volume buys and loss leaders to build store traffic," says the Silicon Valley analyst Rob Enderle.

He adds that allowing retailers to discount Apple's premium brand could cause major problems for the company in the future when it comes to maintaining its high profit margin on cheaply manufactured products from the Far East.

Low-cost products from East Asia are not the only threat to western manufacturers' traditional pricing structures. This year is also going to see the increasing adoption of cloud computing. This allows the remote hosting of software and services on a service provider's computer banks and means that eventually devices such as smartphones, tablets and even laptop and desktop computers will become cheaper as these devices slim down, with most of the heavy computing conducted remotely.

Businesses will be first to adopt cloud computing in order to cut costs and streamline their IT services.

According to Mr Enderle, savings from remote cloud computer hosting can exceed 50 per cent for companies and vastly simplify their online security. For example, cloud-hosted BMC Software's new MyIT application connects staff to IT help desks and shared business documents from the cloud.

However, the lower prices flowing from the cloud could be limited by difficulties in spreading cloud computing in the developing world.

An attempt by the Indian government to bring touch-screen tablet computing to some of the world's poorest people is already facing difficulties.

India had planned to introduce a $50 tablet to be sold in the millions. But the company manufacturing the devices, the United Kingdom-based Datawind, is reported to be having difficulties meeting the Indian government's requirements. India, is however, determined to press ahead with its plans.

business@thenational.ae

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