John Paczkowski

Recent Posts by John Paczkowski

Legacy iPhones Biting Apple in the ASP

The launch of Apple’s iPhone 5 was unquestionably a successful one. The company sold more than five million units during the device’s first three days of availability, setting a new opening-weekend sales record. Yet, by some metrics, the iPhone 5 underperformed compared to its predecessor, the iPhone 4S.

According to new data shared with AllThingsD by Consumer Intelligence Research Partners (CIRP), the iPhone 5 accounted for 68 percent of total iPhone sales during its first month at market — significantly less than the iPhone 4S, which accounted for 90 percent of all iPhone sales during its first month of retail availability.

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.”

What that means is that while Apple is selling tons of iPhones, it’s increasingly selling more of them at lower prices. The implications of that trend, if it is indeed a trend, suggest that by offering consumers the option of purchasing past-generation and lower-capacity devices, Apple is gradually compressing the iPhone’s average selling price (ASP). That’s worth noting because it may have an effect on Apple’s notoriously high profit margins.

“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 explained to 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.”

And that’s something to keep in mind. By offering less-expensive legacy iPhone models along with the latest iteration of the device, Apple is wisely expanding its addressable market. But those lower-priced models will inevitably grow their share, as well. And that might limit not only the number of full-priced iPhones Apple can sell, but revenue and profits, too. Caveat: It’s impossible to say how many of the consumers purchasing legacy and lower-storage iPhones are incremental sales that Apple might not have otherwise seen or lost full-price iPhone sales.

Update: Here’s a clip of my colleagues Lauren Goode and Ina Fried discussing the subject on today’s Wall Street Journal “Digits” show:


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