Strong sales of older iPhones hurting Apple’s astronomic profit margins

By , Dec 3, 2012

Apple might need to rethink its decision to roll-out older iPhones at cheaper prices at the same time it introduces its latest version.

Compared to previous roll-outs, the iPhone 5 accounted for a smaller percentage of overall iPhone sales, according to one market observer.

The iPhone 5 comprised just 68 percent of overall iPhone sales, compared to as much as 90 percent for the iPhone 4S when it was released in October of last year. And as a result of more lower-priced iPhones selling, Apple could face a smaller profit margin – and nervous Wall Street investors…

“In the current launch, the iPhone 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”, Josh Lowitz, co-founder of Consumer Intelligence Research Partners, told AllThingsD.

Also different this time around: Apple sold fewer 64GB iPhone 5s compared to when the iPhone 4S was launched. In other words, “while Apple is selling tons of iPhones, it’s increasingly selling more of them at lower prices”, the site’s John Paczkowski writes.

Selling more $99 iPhone 4S units and giving away more iPhone 4 handsets leads to something called “margin compression” which in turn leads to investors with sweaty palms. Accustomed to astronomic profit margins, investors may not be so quick to see Apple stock as a DIY diamond mind.

For Apple, there is a bit of a juggling act going on.

Offering cheap legacy iPhones brings more consumers into the tent and does something to quiet calls for low-end phones for emerging markets. However, by increasing one segment, the move also scares investors.

How low can Apple’s profit margin dip before real concern sets in?

Also, how costly to Apple are consumers seeking an iPhone bargain?

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  • CollegiateLad

    Please. The iPhone 5 fetches $649, the iPhone 4S $549, and the iPhone 4 $449 – their profits are still huge, no?

    And while the iPhone 4S comprised 90% of sales in 2011, the 70% in sales of the iPhone 5 is still more because Apple has more market share in 2012.

    Apple is in more markets now and the roll out is much faster. And since the components are cheaper today, the profits for selling the iphone 4 and 4S are greater. It’s sad when the people who are paid to know this stuff are clueless.

    • http://twitter.com/doubleaa25 Adham

      Didn’t they just report 50 additional markets will see the iPhone 5 by end of December? How will that hurt profit margin?

      • CollegiateLad

        Exactly. Must be an attempt to manipulate the stock. I’m surprised iDB only regurgitates these stories rather than speak truth to power.

      • @dongiuj

        Depends on how many people have already bought a cheaper iphone in those markets.

  • seecoolguy

    Some early adopters didn’t buy the iPhone5 due to carriers killing off unlimited plans, note Verizon, I know this was my case…

  • Obsidian71

    The iPhone 5 has been much more constrained than the 4S was. Stock is only now able to meet demand.

    • http://www.facebook.com/joe.jonsen Joe Jonsen

      demand is also higher

  • blu

    I got a refurbished 4s for my wife when the 5 came out.
    I am waiting on my refurbished 5 to arrive at this time.
    Only spend $150 for the phones (plus $72 in stupid upgrade fees).
    Apple is still making butt loads of money, no need to worry.

  • http://twitter.com/unbeliever008 Jae. Just J.

    What happens when the next greatest thing since sliced bread is iterative, not innovative. At least in design.

  • http://www.facebook.com/joe.jonsen Joe Jonsen

    selling old tech is dumb..

    • http://twitter.com/djmobil2 djmobil2

      The great majority of the society can’t afford the newly tech. So it’s brilliant for Apple to catch the market that can’t pay for an iPhone 5 but can pay for a 3Gs or a 4s.

  • @dongiuj

    The 4S is almost identical with the 5. What do you expect?!

  • http://twitter.com/djmobil2 djmobil2

    I think that the lack of sales for the 64GB iPhone model is related to the proliferation of the cloud storage services. Customers are relying more and more on such services as they have been fast growing. So, consumers consider being unpractical to pay the extra money for a 64GB iPhone when they can cloud storage services and this have a big weight on the buy a device by its storage capacity desicion.