Will This iPhone Live or Die?

Even though Apple (Nasdaq: AAPL  ) only releases one updated iPhone model per year, the product family continues to flourish and add members to its ranks.

The iPhone maker has kept older models in production over the past few years and currently offers the iPhone 3GS (released in 2009), iPhone 4 (released in 2010), and iPhone 4S (released in 2011). With the sixth-generation iPhone due out later this year, what will become of the aging iPhone 3GS?

Source: Apple. iPhone 3GS.

Source: Apple. iPhone 3GS.

Is this model's days numbered as it approaches its third birthday? In the fast-moving world of smartphones, this device can hardly compete with the speedy young whippersnappers of today. The 3GS is available for free on contract domestically, so once the sixth-generation model is released, the pecking order will shift down and the iPhone 4 should logically take the free-on-contract price point.

According to Jefferies analyst Peter Misek, this old fella may still have a few breaths left in him yet. Misek believes that Apple will continue producing the 3GS and has inked a new partnership to bolster distribution in prepaid markets around the world to further tap into emerging markets. The 3GS currently carries an unsubsidized price tag of $375 stateside, and Misek expects that to fall to between $250 and $300 after this year's new model is released.

I think Apple will stop selling it domestically but continue selling it abroad to help it grab lower price points in other markets. Cheaper Google (Nasdaq: GOOG  ) Android offerings are gobbling up market share in geographies like Europe and China. In China, the 1,000 yuan price point is considered a particularly significant threshold, and the 3GS currently sells for 2,888 yuan while the newest iPhone 4S starts at 4,988 yuan. Microsoft (Nasdaq: MSFT  ) recently said the software giant's market share in China has reached 7%, beating Cupertino's 6% share in the region.

Research In Motion (Nasdaq: RIMM  ) continues to lose its foothold in the North American market, with U.S. and Canada revenue plunging 47% and 11% last year, respectively. U.K. sales also dropped 13%, while its "Other" geography is the only segment that's actually growing, jumping 31%. A cheaper iPhone 3GS in those regions could make short work of that progress.

Apple should continue producing the 3GS to occupy more price points. That would make the global iPhone lineup include four different models for different strategic purposes. This is notably what it's now doing with the iPad, as it still produces the iPad 2 at a lower price point.

Long live the iPhone 3GS!

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Fool contributor Evan Niu owns shares of Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Google and Microsoft and Apple. Motley Fool newsletter services have recommended buying shares of Google, Apple, and Microsoft and creating bull call spread positions in Apple and Microsoft. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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