Older, cheaper, and lower capacity iPhones dampened sales figures for Apple’s iPhone 5 during its first month on the market, according to data from Consumer Intelligence Research Partners (CIRP), reported by AllThingsD Monday. During October, the iPhone 5 accounted for only 68 percent of total iPhone sales, down from the 90 percent secured by the iPhone 4S during its first month on the market.
In other words, as a percentage of total iPhone sales, Apple sold more iPhone 4 and iPhone 4S units during the launch of the iPhone 5 than it sold iPhone 4 and iPhone 3GS units during the launch of the iPhone 4S. It also sold more lower-capacity devices.
“This is all about how the pie is sliced,” CIRP co-founder Josh Lowitz told AllThingsD. “In the current launch, the 4 and 4S slices are bigger, relative to the 5 slice than the 3GS and 4 slices were relative to the 4S slice during the prior launch. Similarly, the 64 gigabyte slice is smaller, relative to the 16GB and 32GB slices of the 5 than the 64GB slice was relative to the 16GB and 32GB slices of the 4S when it was launched,” Mr. Lowitz elaborated.
While many would argue that an iPhone of any generation or capacity sold is good for Apple, the long-term effect of this trend could have a significant impact on Apple’s margins. Because the older and lower capacity phones are less expensive, their increase as a percentage of total iPhones can lower the average selling price, or ASP.
“ASP compression naturally leads to margin compression, which is a big fear of Apple shareholders as their markets become more competitive,” CIRP co-founder Michael Levin told AllThingsD. “They had record margins in the recent quarters, healthy and even growing at times, which is unheard of for a company of Apple’s size and market share in smartphones and tablets. These margins may have started to moderate somewhat with the launch of the iPhone 5.”
Of note, however, this analysis only applies if consumers purchase a cheaper or lower capacity iPhone in lieu of a newer, more expensive model. If Apple’s decision to keep older phones on the market at lower prices helps capture customers that otherwise would have been unavailable, then Apple still comes out on top in the end, as any decrease in hardware margin will likely be made up in long-term software and subscription fees.
Regardless, there is no indication that Apple plans to discontinue its practice of selling previous generation models at a lower price, and if the company is indeed moving to a six-month product release cycle for the iPhone as has been rumored, then it is likely that the share of sales for the latest model will continue to remain relatively low compared to previous years.