Apple’s iPhone was first brought forth in 2007 and since then has unfailingly delivered a new iteration every year. In the past, in order to cater to more cost-conscious customers, Apple discounted the prices of the iPhone’s previous generation models by about $100 to provide for a cheaper model alongside the newer, more expensive one. Recent reports from the Wall Street Journal stated that the iPhone 5S, slated to be the next iPhone, is scheduled to release within this quarter around June or July. However, reports say that this time Apple may discontinue the older version of the phone when the replacement comes in.
This strategy can be rationalized by the fact that with this new phone, Apple wants to pressurize their opposition, i.e. Blackberry with its Z10 and Samsung and HTC with their S IV and One flagships respectively. In order to prevent consumer monotony, Apple will look to upgrade their flagship mobile device as soon as they can to get one step ahead of the competition, just like Samsung did when it released the S III only a little while after the iPhone. The trick here is doing it without hampering profitability, which has gone south in the near past.
Apple’s gross margins last fall fell from about 45% to a little less than 39%, which was a drop of about 610 basis points. Temporary costs like those required for the new production process, new working capital and others increased mainly due to the imminent release of the iPhone 5, yet the overheads remain larger than that of the 4S, thanks to increased cost of its components. Apple’s earnings in the last quarter were stellar by all accounts, but did not meet analysts’ expectations. In the next earnings report, most industry analysts predict a drop in revenue and profits.
The iPhone 5S is expected to come with only incremental updates. It is expected to boast of a faster processor and a fingerprint reader. No other significant changes are expected. This could turn out to be a problem for the manufacturer, since the iPhone 5 was an incremental upgrade. Usually, the ‘S’ named versions of the iPhone are usually incremental upgrades whereas full numbered versions are major upgrades. With the iPhone 5 being a small upgrade, fans will be understandably disappointed if the 5S is also a small upgrade. Apple’s move to discontinue older models may be to improve sales of the latest generation device, since customers will not be able to choose to buy a slightly older but still very much relevant iPhone 5 at a cheaper price.
