Neil Hughes
Analyst Mike Abramsky with RBC Capital Markets said on Wednesday that Apple is "expected" to offer the iPhone 3GS for free when the iPhone 5 launches later this year. He said this approach would help Apple with mid-market buyers, and would also help the iPhone counter the growth of Google's Android platform.
"While a $49 iPhone is already available (AT&T), psychologically a $0 iPhone provides a compelling offer," Abramsky wrote in a note to investors. "Proprietary survey data... suggests 14% are very/somewhat likely to buy the iPhone 3GS for free with 2-year contract, exceeding buying interest for the iPad (13%) and original iPhone (9%)."
Abramsky sees the offering of a free iPhone 3GS as a way for Apple to double its potential market opportunity to more than 150 million smartphones. A lower-priced iPhone 3GS, offered $399 unsubsidized, would also increase iPhone share globally, he said.
The analyst also expects Apple to release what he called a "baby" iPhone in 2012. That later release would avoid iPhone 5 cannibalization, and would allow such a device to better leverage iCloud services.
For Apple to still offer the iPhone 3GS after the launch of a fifth-generation iPhone would be a change, as in years past Apple has discontinued its two-year-old smartphone model. For example, last year the iPhone 4 launched, the iPhone 3GS was dropped to $99, and the iPhone 3G was discontinued.
In January, the price of the iPhone 3GS was reduced even further, to $49 in the U.S. The device carries an 8GB capacity, half that of the entry-level 16GB iPhone 4, which sells for $199 with a new two-year contract.
In May it was revealed that the iPhone 3GS, along with the first-generation iPad, often outsells many newer Android-powered devices. It was noted that older products can offer Apple an aggressive tiered pricing strategy that can help ward off competition.
Though the iPhone 3GS was first released in 2009, it will be compatible with Apple's forthcoming mobile operating system update, iOS 5. That update is scheduled to arrive this fall, likely alongside the release of a fifth-generation iPhone.
Christine McKee
Charles Martin
Malcolm Owen
115 Comments
It'd be great if we could stop this analyst from having his own babies. This level of nonsense must be genetic, and there's no reason to sully someone else's life with it.
Why in the world would Apple sell a phone that is almost immediately going to get outdated. At the least they have to put an A4 if not A5 in there, so when they come out with future software updates, their customers don't feel like they've been cheated, like Samsung and the rest.
"Proprietary survey data... suggests 14$ are very/somewhat likely
I'm assuming that should read "14%".
#corrections
--Stephen
Why in the world would Apple sell a phone that is almost immediately going to get outdated. At the least they have to put an A4 if not A5 in there, so when they come out with future software updates, their customers don't feel like they've been cheated, like Samsung and the rest.
If true, this shows that Apple is desperately holding onto hopes that they can still win the market share fight, or trying not to fall too far behind.
Why in the world would Apple sell a phone that is almost immediately going to get outdated. At the least they have to put an A4 if not A5 in there, so when they come out with future software updates, their customers don't feel like they've been cheated, like Samsung and the rest.
Supply. Apple's iPhone business is far more supply constrained than people realize. Horace Dediu of Asymco made this point a while back, no other phone maker produces one model a year and makes twice as many of that model as they did of the previous model. Every other phone maker has a big portfolio of models that allows them to handle supply more smoothly, and besides they're not growing their overall business at anything like Apple's rate.
Apple already has functioning supply chains and assembly plants for the 3GS, so why shut those lines down for as long as the 3GS is capable of running the latest OS and is selling well? At some point they may indeed decide to upgrade the internals to an A5 - but it will depend on how that would affect the tooling on the supply line.
As for immediately outdated - the 3GS runs iOS 5, and supposedly runs it pretty well. So the 3GS is good for at least a year, quite possibly more - which is a longer support life than the average Android phone can expect at launch. Many people don't need uber tech specs, especially people converting over from dumb-phones.
I wonder if this analyst has information from suppliers that leads him to believe that the 3GS supply is not being run down ahead of the iPhone5/4S launch.