The iPhone Turns 5: Look How Far It's Come

The iPhone turned 5 today. Upon reaching that age, most young ones enjoy milestones such as learning to read and write or being able to tie their own shoes. For the iPhone, its half-decade milestone is that it's now become a $70 billion business.

They grow up so fast
(Nasdaq: AAPL  ) launched its now-iconic device back in June 2007, and has subsequently reshaped the entire smartphone industry. Just about every successful smartphone nowadays is built with a capacitive touchscreen, a departure from the hardware keyboards made popular by Research In Motion (Nasdaq: RIMM  ) and its BlackBerrys in the years before it.

The product family has been built up one model per year at a time, each progressively occupying different strategic price points. Through the first calendar quarter, Apple has now sold a cumulative total of 218.1 million iPhones since its inception, and this rate is dramatically accelerating; just over half of them (109.5 million) have been sold in the last four quarters alone. With all the iPhones Apple has sold in the second quarter, that figure should be approaching 250 million.

Source: SEC filings.

The iPhone has generated $71.4 billion in sales over the past four quarters, thanks in part to the generous carrier subsidies that it's able to extract for the device that keeps its average selling prices much higher than rivals'. Many mobile device makers would love to see overall top lines that high, yet Apple is able to generate all those sales from just a single product lineup.

Source: SEC filings.

It has quickly become the single most important product to Apple's incredible success over the past few years, generating half of trailing-12-month sales. Even the iPod, one of Apple's most significant achievements in the past decade, never reached this level of significance. That device's contribution to TTM sales topped out around 40% in 2006, and has fallen dramatically ever since as a planned and expected victim to iPhone cannibalization.

Source: SEC filings.

The iPod certainly wasn't the only casualty of the iPhone.

Juvenile delinquents
Three of the most visible victims to the iPhone have been none other than Nokia (NYSE: NOK  ) , Research In Motion, and Palm -- three companies that were once synonymous with smartphones yet are now empty shells of their former selves. This chart starts on the original iPhone launch.

AAPL Chart

AAPL data by YCharts

Palm in particular is literally no more, swallowed whole by Hewlett-Packard (NYSE: HPQ  ) for $1.2 billion, which has resulted in nothing more than massive investor indigestion. Even having a former Apple exec, Jon Rubinstein, in charge wasn't enough to turn the tables. Today, HP still has no smartphone strategy, although it's making a big tablet push with Microsoft (Nasdaq: MSFT  ) Windows 8 later this year.

Nokia's business has been crumbling for years, and the clock is ticking for a turnaround, but partner Microsoft isn't doing the Finnish company any favors, excluding current devices from being able to upgrade to the newest operating system that will be released later this year. That was enough to cause T-Mobile's German arm to stop offering the device.

RIM initially blew off the iPhone, with former co-CEO Jim Balsillie saying, "It's kind of one more entrant into an already very busy space with lots of choice for consumers. ... But in terms of a sort of a sea change for BlackBerry, I would think that's overstating it." If you ask me, I'd say that losing 86% of its value over five years falls squarely under the "sea change" category.

It's not just a coincidence that when the first iPhone was unveiled, RIM, Palm, and Nokia were all among the devices that Steve Jobs displayed that he considered lackluster offerings at the time.

Source: Apple. Original iPhone introduction in 2007.

Microsoft similarly dismissed the device at the get-go, with CEO Steve Ballmer literally laughing at the proposition, believing that it "doesn't appeal to business customers because it doesn't have a keyboard, which makes it not a very good email machine." At the time, he added, "Right now we're selling millions and millions and millions of phones a year. Apple is selling zero phones a year. In six months they'll have the most expensive phone by far, ever, in the marketplace. Let's see how the competition goes."

Instead of six months, we're now five years out, so let's see how this competition is going.

Operating System

Q1 2012 Units

Q1 2012 Market Share

Google Android 81.1 million 56.1%
iOS 33.1 million 22.9%
Research In Motion 9.9 million 6.9%
Microsoft 2.7 million 1.9%

Source: Gartner (May 2012).

And so it goes.

Who do you want to be when you grow up?
Apple has defined the direction of the entire smartphone industry with the iPhone. The capacitive touchscreen is ubiquitous now. Even RIM is wising up and one of the first BlackBerry 10 devices won't have a hardware keyboard, a nearly blasphemous idea. Both flavors will be offered, but the tides are turning.

The iPad is off to an even more promising start, and isn't even half the age of its smartphone brethren. It's got quite a role model to look up to, but at the rate that it's going it might very well become the favorite child.

Source: SEC filings.

We're just now seeing the beginning stages of tablet adoption, and with Apple leading the way you might be wondering if you can still buy Apple, even though it's now the largest tech company in the world. Lucky for you, we've got the answer in a brand new report. After you're done there, grab a copy of this free report on American companies dominating the world, much like how Apple now generates the majority of its sales internationally. It's totally free.

Fool contributor Evan Niu owns shares of Apple, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Microsoft, Google, and Apple. Motley Fool newsletter services have recommended buying shares of Microsoft, Google, and Apple. Motley Fool newsletter services have recommended creating bull call spread positions in Apple and Microsoft. The Motley Fool has a disclosure policy. We Fools may not 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.

Read/Post Comments (3) | Recommend This Article (23)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 29, 2012, at 1:32 PM, WHOVPLLC wrote:

    Since the company's inception Apple has been one of the dominent Personal Technology companies in the United States, perhaps the World. The early days, the Apple I, then the Apple II, Apple 2c, followed by the explosive, in Living Primary Colors. I primarily used IBM PC compatable PCs or computers using the CPM operating system - occasionly UNIX with its somewhat quarky Pine e-mail system.

    With Steven Jobs return to Apple when Apple bought NEXT Apple stellar performance was assured. Cook will carry-on the Apple tradition and rocket growth, at least over the next seven years of so. Post seven years, even Venture Capitalist's crystal Balls fog-over.

  • Report this Comment On June 30, 2012, at 6:41 PM, dsciola wrote:

    Apple has dominated its space with the iPhone and especially with iOS. The question is will they continue to do so and still be able to command a premium for their phones relative to their peers. Companies always look like great investments when they are at the top.

    What happens if VZ and AT&T drop their subsidies of the iPhone due to saturation, cost, competition, or whatever? Will consumers be comfortable paying the full and even higher price for the iPhone, say 800 bucks?

    Just my thoughts...perhaps someone else may have some insight or further analysis.


  • Report this Comment On July 01, 2012, at 12:56 AM, CMFSoloFool wrote:

    "What happens if VZ and AT&T drop their subsidies of the iPhone due to saturation, cost, competition, or whatever?"

    Oh, that is pretty simple, customers will leave VZ and AT&T and go to the companies that still have the iPhone subsidies. Trust me, the phone companies need Apple, the iPhone sells a ton of very expensive data plans.

    What other phone makers can't figure out is how the heck can Apple make such great phones and still make such a huge margin. iPhone envy!

    Credit where credit is due... the iPhone, and iOS, completely revolutionized smart phones. Android should have to pay a royalty to Apple for copying their ideas. If they could come up with their own ideas maybe they wouldn't have to give Android phones away.

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