Even with competitors swarming into the market with equal or better specs, Apple's iPhone continues to be a consumer favorite around the world, with record sales of more than 31 million in the quarter ending in June -- the highest ever for that period.
The iPhone continues to be Apple's most lucrative product, contributing strongly to the Cupertino, Calif.-based technology giant's $35.36 billion in revenue and $6.96 billion in net profit slightly better than Wall Street analysts' projections for the quarter.
Undercut by 4S
Analysts say the vibrant iPhone sales may largely be attributable to the sales of the discounted, penultimate device, the 4S, which is now available in emerging overseas markets.
In the U.S., the most recent iPhone, model 5, which was released last fall, amounted to slightly more than half of iPhone sales, according to surveys by the Chicago-based Consumer Intelligence Research Partners, which polls 500 consumers every quarter.
"The iPhone 5 hasn't done as well as the 4S," said Michael Levin, co-founder of CIRP. "At this point in its lifecycle, the 4S accounted for 70 percent of iPhone sales, while the 5 is at 52 percent."
Apple hasn't disclosed a breakdown of iPhone sales. But in an earnings call with analysts on Tuesday, CEO Tim Cook confirmed that overall sales of the iPhone 5 amounted to slightly more than half, according to a participant in the call.
Levin attributed the difference to increased competition from devices such as Samsung's Galaxy S 4 and new devices running the latest version of the BlackBerry and Windows operating systems.
"Consumers have a lot more choices at the high end," Levin told us. He added that increasing its base is a mixed blessing for Apple since newcomers tend to buy the cheaper models. "Previously, customers would upgrade or buy the top iPhone, and now a lot of first-time buyers are buying the legacy device rather than the flagship."
The basic model (16 gigabyte) iPhone5, which has a larger screen and access to long-term evolution, high-speed data, sells for $200 with a two-year voice and data contract. But the top wireless carriers are selling the 4S for $99 and giving away the iPhone 4 for free with a two-year contract. Lower revenue from the cheaper devices is already being seen in lower margins.
New Products Needed
Apple's third-quarter numbers were particularly encouraging given that it hasn't launched a major new product yet this year. But Apple, under CEO Tim Cook, clearly recognizes that it can't rest on its laurels for long. Speculation is rife that the company will refresh the iPad and iPhone lines soon with a variety of screen sizes. While the iPhone 5 is the first to increase the display from 3.5 inches to 4, The Wall Street Journal recently reported that Apple is looking at larger screens for the phones and smaller screens for tablets.
Apple already has the 7-inch iPad mini. But its biggest rival, Samsung, has a range of 27 screen sizes for its tablets and phones.
With a new iPhone on the horizon, Apple should be glad for the new customers incorporated into its ecosystem of the App Store, iTunes and iCloud, who may well be enticed to "generation skip" from the older models to the newest when their contracts are up.