Apple's Secret Weapon: the iPhone 4
Three-Year-Old Smartphone Propels Company's Sales in Price-Conscious Markets
Apple Inc. is known for drawing crowds with its latest and greatest
technology. But one of its most potent weapons in some markets came out three years ago.
The iPhone 4, originally released in 2010, is helping to power Apple's sales in price-conscious markets such as India and counter stiff competition from an array of rivals selling smartphones powered by Google Inc.'s Android software.
That three-year-old smartphone played a major role on Tuesday, when Apple surprised investors with third-quarter sales of 31.2 million iPhones, 20% more than a year earlier and 18% more than the 26.5 million analysts had been expecting.
While Apple said the current iPhone 5 is still its top seller by far, the company added that demand for the iPhone 4 is a key reason for the rise in smartphone sales.
Not that selling older models in emerging markets is a new strategy for the company. And it has potential downsides, as lower-priced phones can squeeze gross profit margins.
But Apple, despite its image as a premium player, is adopting more aggressive tactics to sell its oldest smartphone in markets where demand is growing quickly and many buyers have never purchased a smartphone before.
Tim Cook, Apple's chief executive, said the number of first-time smartphone customers the iPhone 4 attracts are impressive. "We want to attract as many of these buyers as we can," he said during a conference call with analysts Tuesday.
The iPhone 4 also is helping to bolster revenue at a time the Cupertino, Calif., company is suffering from a lack of new models to attract such customers.
Apple has been developing a less-expensive smartphone model that is likely to be introduced later this year, people familiar with the situation have said. Unlike the iPhone 4 and 4S, which have smaller-sized screens, the lower-priced device will be the same size as the iPhone 5, but without the signature metal casing, according to these people.
An Apple spokeswoman declined to comment Wednesday beyond the company's earlier statements.
In 4 p.m. trading Wednesday, Apple shares, which have slumped since last fall on fears the company is losing its momentum, were up 5% at $440.51 on the strength of its quarterly results.
The iPhone 4 is Apple's least-expensive model, and is offered for free in the U.S. with a two-year carrier contract, compared with a starting price of $199 for the iPhone 5. Without a subsidy, the oldest model is priced at $450; the iPhone 4S starts at $549, while the top-end model starts at $649.
A shift toward lower-priced models was a factor in Apple's lower average selling prices in the third fiscal quarter ended in June, which slid about $32 to $581 from the quarter ended in March.
But Apple seems undeterred. It is being particularly active with new pricing and advertising strategies to push the iPhone 4 in India. The company shipped 205,000 iPhones to the country between April and June, according to market watcher Cybermedia Research. That's a three-fold increase from a year earlier, when Apple shipped 72,000 phones, and a 41% jump from the first three months of the year.
"India was up over 400%," Mr. Cook told investors, without disclosing specific unit figures.
By comparison, iPhone sales in the U.S. and Japan, rose 51% and 66% respectively.
In April, Apple launched a promotion in India that allows consumers to exchange any of their older smartphones—whether it be an iPhone, a smartphone powered by Android or one from BlackBerry Ltd. for a cash discount of at least
7,000 rupees ($117) on the purchase of a basic version of the iPhone 4.
The company recently expanded the promotion to include a cash discount on an iPhone 4 with more memory capacity to store data.
Apple has said it also plans to make the iPhone 4 "more attractive" in China, where the company recently saw sales slow. "I continue to believe that in the arc of time here, China is a huge opportunity for Apple," Mr. Cook said, adding he wasn't discouraged by the recent slowdown.
But in the meantime, TZ Wong, an analyst at IDC, said Apple is using its sales partners to push the older model phones. Guo Bing, a vendor at a computer mall in Beijing's business district, said about 30% of his total sales are still iPhone 4 and 4S smartphones, compared with iPhone 5s, which make up about 50%. The rest are Samsung Electronics Co. devices, he said.
Of the older model iPhone, Mr. Guo said, "It still sells pretty well, because now people can get it for half the price of what it used to be." Many customers buy iPhone 5s for gifts, he added, but usually buy the iPhone 4 or 4S for personal use.
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