Apple Might Introduce the iPhone 5 and the iPhone 4S this Fall Discussion

[Ed Hardy]

There have been conflicting rumors about Apple's next smartphone. One set describes a device that will be a significant upgrade, but a second says the next iPhone will be only marginally improved. An industry analyst thinks he has the answer: Apple is going to release both.

Read the full content of this Article: Apple Might Introduce the iPhone 5 and the iPhone 4S this Fall

Related Articles:

• A Redesigned iPhone Coming in August?
• Apple Now Offering an Unlocked Version of the iPhone 4

[Varjak]

Actually, he makes a compelling case. That sounds quite reasonable.

[Drillbit]

Apple actually introduces 2 new models every year. The first is the all new phone people talks about, the second is taking last year's prime model, reduce the memory to 8gb, and sell it as the entry level. In this case, if IPhone 5 comes out, iPhone 4 is reduced into a 8gb model and sold at a lower price point. The current lowbee iPhone is the 3GS 8gb.

[Ed Hardy]

Right, but the low-end model is still sold the same way the "full strength" one is. It would be quite a departure for Apple to release one that's intended for the pay-as-you-go market.
-

[Varjak]

Plus, the old 'method' is probably a bit outdated. Just dropping the old phone down a slot may not cut it anymore. Tweaking the 'old' model and introducing a new one makes a lot of sense. Not to mention the new 'paradigm' of selling the lower tier model.

[Drillbit]

Right, but the low-end model is still sold the same way the "full strength" one is. It would be quite a departure for Apple to release one that's intended for the pay-as-you-go market.
-

The pay to go market, at least with most parts of the world is still willing to go up to $700 for an unlocked, no contract phone. Even the current iPHone 4 sold in the Apple stores unlocked would fall under that boundary.

I think its possible for an iPhone 4 8gb to be sold in the $400 to $500 price category. One has to remember, the higher the volumes of the phone components ordered, the lower the price gets. For Apple to get higher margins, it must have lower production costs, and to lower production costs, it has to increase volumes.

In terms of component logistics, the volumes for iPhone parts are extremely high, and the higher it gets the longer and more the more expensive it takes to shift the manufacturing inertia --- infrastructure, tooling, labor training et all --- into a new model. This is not to mention all the warehouses that are still storing these components. Higher production volumes tend to lead into longer production lead times, longer component queues and so on. In other words, a freight train that is hard to stop suddenly.

Just like what happened to the 3GS, you cannot simply shuck the entire massive iPhone 4 manufacturing infrastructure out of the picture just like that. You simply have to fade it out of production gradually over time as a new model is introduced. Just like what happened to the 3G and 3GS. Thus it is a manufacturing necessity that Apple has to keep a product cycle overlap between the old and the new phones.

A cheaper, pay as you go iPhone is likely only going to compete with used iPhones in the market. The margins won't be there, the user experience is compromised with lower performance, there is going to be market cannibalism, and platform fragmentation within a closed system (which pretty much helped to do in Blackberry and Nokia).

[Varjak]

Actually these days you don't NEED an overlap if you don't want one. Inventories are 'just in time,' etc. Nobody keeps old inventory of parts around unless they specifically want to. Volumes don't have much to do with the manufacturing inertia. Tooling has a lifespan (planned for well in advance) as is initiation of new tooling and products. These factories can turn on a dime these days.

It certainly can make business sense though to do so, to further amortize one's development costs of the old model.