Why Is Verizon Still Selling So Many Old iPhones?

Without a doubt, Verizon (NYSE: VZ  ) shareholders have to be feeling pretty good about themselves right about now. On the heels of the company's strong quarterly earnings report last week, the stock has returned more than 22% so far this year when you include its beefy 4% dividend.

Meanwhile, smartphone and tablet extraordinaire Apple (NASDAQ: AAPL  ) has faced a deluge of negativity over the past several months, most recently closing out last week by setting three consecutive 52-week-lows. All told, Cupertino's year-to-date performance hasn't fared much better:

VZ Total Return Price Chart

VZ Total Return Price data by YCharts

Curiously enough, Verizon also just told us that 4 million of the 7.2 million smartphones it sold in the first quarter were Apple's iPhones, and facing competition from the likes of Samsung with its massively popular Galaxy series devices, to take home more than half of Big Red's total smartphone sales is no small feat.

Unfortunately for Apple, just half of those 4 million Apple devices Verizon sold were iPhone 5s, with the remaining half consisting of the older iPhone 4 and 4S models. Of course, that's consistent with last quarter's split, when many investors had thought (or hoped, rather) that the iPhone 5 was simply in short supply.

Yet here we are looking back at another 50/50 split in Q1, when Apple's fresh supply of iPhone 5s should have had no trouble keeping up with demand. So does this mean consumers are underwhelmed with Apple's latest offering?

Perhaps.

That doesn't do much to reassure nervous Apple investors who are praying for a blowout quarter to turn things around.

Apple iPhone 5, Apple stock

Apple iPhone 5, Image Source: Apple

The silver lining
Then again, while this all seems to show that consumers aren't particularly compelled to pay up for the iPhone 5, the fact so many people want an iPhone at all -- new or old -- undoubtedly shows impressive interest in taking part in Apple's world-class software ecosystem. After all, when so many people we interact with on a daily basis already have Apple's products, network-effect-based applications such as iMessage and FaceTime start to look a whole lot more interesting.

Take me, for instance. A few months ago, I was just itching to get rid of my buggy old BlackBerry (NASDAQ: BBRY  ) Bold smartphone after nearly two years of frustration with its subpar ecosystem, slow download speeds, network outages, and botched software update pushes. While I knew BlackBerry had bigger and better plans going forward, the fact remained that I had little faith remaining in the company's products or infrastructure.

Tough to beat "free"
Meanwhile, I had bitterly watched nearly everyone else I knew zip around with a comparatively quick iPhone, with their enviable access to nearly every neat little app imaginable. As a result, when I had the chance to start a new two-year contract with Verizon in February, I promptly ordered my new iPhone 4.

For free.

Oh, and did I mention it was free?

You see, I'm one of the apparently large camp of folks who really doesn't care whether they have the latest and greatest tech available at any given time. Heck, I still drive around my wife's first car -- a '98 Cavalier with more than 200,000 miles on it. Does my 6-foot-4 frame look awkward getting out of that car? Sure. Do I care? Not really.

Similarly, I'm more than happy with my "old" iPhone, especially considering I've never known any other. And when the time comes to renew my contract in a couple of years, I'll gladly upgrade to whichever version of the iPhone 5 happens to be free at that time. 

So how, exactly, is this good for Apple?
While Apple certainly gets less per device from Verizon on older products, that still doesn't mean it won't eventually get our money.

In fact, I've spent more than my fair share in Apple's iTunes and App Store buying apps, music, television episodes, and movie rentals through both my iPad and iPhone. And that, my fellow Fools, is where forward-looking companies such as Apple and Amazon.com (NASDAQ: AMZN  ) know the real money is to be made down the road. The difference between Apple and Amazon, however, is that Apple is already making boatloads of cash as it grows its already massive digital infrastructure.

Of course, that's not to say Apple couldn't also turn its share price around by introducing some new, mind-blowing device down the road -- something I'm convinced it will do eventually. But in the meantime, as the company trades at less than 9 times trailing earnings with $137 billion in cash on its books, I'm more than happy to buy its shares on the cheap.

More expert advice from The Motley Fool
There's no doubt that Apple is at the center of technology's largest revolution ever and that longtime shareholders have been handsomely rewarded, with more than 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


Read/Post Comments (31) | Recommend This Article (12)

Comments from our Foolish Readers

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 April 20, 2013, at 9:19 AM, bonzo99911 wrote:

    You don't seem to understand that $199, $99 and $0 are contract prices from the carriers. Apple gets about $549 and $449 when they sell iPhone 4 and 4S, respectively. While the higher mix of older phones would imply a lower ASP, the margine on iPhone 4 and 4S is far higher than that of iPhone 5.

  • Report this Comment On April 20, 2013, at 9:38 AM, bbrriilliiaanntt wrote:

    This is exactly why Apple does not need a 'cheap iPhone'! They can continue selling older iPhones that they make phenomenal margins on and already have the manufacturing honed - yield rates, operational efficiencies, and economies of scale. It's obvious and yet no one seems to get it, fascinating!

  • Report this Comment On April 20, 2013, at 9:45 AM, cbglobal wrote:

    Right, The day Blackberry comes out with a new ecosystem that makes IOS obsolete, you switch from BB to Apple. What a loser.

  • Report this Comment On April 20, 2013, at 9:54 AM, cbglobal wrote:

    So after 6 years of iPhone you now switch to Apple from BBRY right when the new BBry that makes Apple obsolete comes out. Your making this up right to manipulate these stocks?

  • Report this Comment On April 20, 2013, at 9:56 AM, TimKnows wrote:

    A laughable article that somehow got posted to the site! Thanks! Great, you like the 2011 model of phone, why not get the 2010 model? The stock trades at 2011 levels too so all is good here. Soon AAPL will be earning 2011 level profits and we can all rejoice!

    Apple makes old, outdated products, their i OS is circa 2007 so you should really like that!!! The fact that the world has passed them by is of no interest to a consumer like you! Living in the past, how nice!

  • Report this Comment On April 20, 2013, at 10:36 AM, garysund wrote:

    When a consumer becomes interested in a new product they have never owned they do not always go for the high end. Why pay a huge amount for something when you are not so sure you will really be happy. This in my opinion is a large part of the future the apple market. I started out a few years ago with a samsung smartphone. I was pretty happy with it and the functions seemed fantastic compared to a regular cell phone.. One thing I didn't care for was it looked and felt cheap when you held it in your hand. And god forbid if you ever dropped it with its cheap plastic frame. Many of my friends were buying the iphone 3 and then 4. I was a hold out. I figured the samsung phone was just fine and why spend any more money. Of course it was just as I said above I ended up dropping my samsung and that was that, I needed a new phone. This was about the time the iphone5 was released. When I went into my local at&t store the iphone 5 was going for much more than the older models. So the skeptic that I was, I took the iphone 4 that was way less cost on my part. Well I was just blown away. I said to myself why in the heck did I wait so long to get this apple product. The answer was I was being cheap. Now I have had the iphone 4, I can't wait for the iphone 5. Of course by the time my contract is up they will probably have a iphone 6 out. If that is the case I will buy the latest model available and knowing me will continue upgrading when any futhre models come out. It took some time but I am a true believer in the product now. I know you should never say never but my current feeling is I will never go back to samsung. There is just no way you can compare the two products. It just took me some time to find this out.

  • Report this Comment On April 20, 2013, at 11:01 AM, shibadude wrote:

    Probably because of the stupidity of Apple by changing the charger from 30 to 19 pins. I already had an itouch and ipod with car charger plus clock radio and Bose speaker for those items. Why would I buy an iPhone that won't work with any of these devices. I could have upgraded to the iphone 5 but why.

    I guess Apple thinks all of us consumers are stupid as hell.

  • Report this Comment On April 20, 2013, at 11:03 AM, Gunnyphillips wrote:

    Two things stick out in this article.

    1) The notion that a phone is "free" just because you don't pay for it up front has been long debunked. They will get their money over the contract term.

    2) By the authors own admission, he has willingly bought into the proprietary world of Apple and will spend a good amount of cash there too over the contract term.

    But aside from these things Apples iPhone has failed to keep up with the competition it created. While still somewhat ubiquitous in the marketplace, it's days seem numbered which is one of the reasons it's stock is taking a beating. Other reasons include the eventual collapse of the iTunes revenue stream as better and cheaper [some free] options exist. Apple's bread and butter has always been eloquent innovation, but now that the master innovator is gone, they need to reinvent themselves. The question is whether or not they can.

  • Report this Comment On April 20, 2013, at 11:03 AM, rhealth wrote:

    Well, all you BBRY users have fun texting your friends 1990s style and trying to get that rollerball to line up. :p

    I just upgraded my 3gs and wasnt sure whether to pick the 4s or 5. I chose the 5 after learning the specs which are roughly double in the wifi/RAM processor speed categories. Plus the camera is really excellent. I'm going to start taking pictures of BBRY users who can compose a text in less than 10 minutes.

    Brett- long AAPL

  • Report this Comment On April 20, 2013, at 11:05 AM, d332133 wrote:

    I can't trust a writer that does not know that 5s are not out yet--soo no way that half the phones that Verizon sold are 5s.

  • Report this Comment On April 20, 2013, at 11:13 AM, misledbyfools wrote:

    Hey Garysund,

    Your actions reveal that you are as you admit...cheap (frugal) and choosing less than leading edge technology only makes sense to you as you are a value seeker. HOWEVER, your personal choices also reveal why your comments are meaningless as far as a consumer that follows tech trends because you, my friend are a follower and do not have the ability to be part of and participate in setting the newest trends, only follow them over the hill and down into the valley of obscurity. If it was up to you to support the latest technology with your wallet.......PROGRESS WOULD DIE.

  • Report this Comment On April 20, 2013, at 11:21 AM, DanManners wrote:

    Great great article and the one point is people are buy the ecosystem, not the phone. Apple could make that ecosystem better and that is what they have to do. Buy netflix, improve software, and sell a cheaper phone to the masses in China and target that ecosystem towards them. Make the govt in China your friend and you cant go wrong. Give them back some of the money and they will let you thrive.

    but unfortunately we know Tim Cook will do everything he can to destroy Apple. He is working on that and succeeding so nicely. He has done everything wrong. And he will continue to do so. Expect the stock to be below 300 soon and never ever ever ever see 400 again. Soon we will be saying never 300 again. But he feels your pain!

  • Report this Comment On April 20, 2013, at 11:22 AM, misledbyfools wrote:

    Hey rhealth,

    I hope that you are happy with your overpriced hardware. How fast can you text with that extra speedy processor????? How does Brett communicate with that new toy of his????

    Good luck with your pics, but by the time you compose the frame, the BBRY users have already finished communicating and all your camera will capture is a rear view. Hope you like it.

  • Report this Comment On April 20, 2013, at 11:24 AM, Burstedbladder wrote:

    Why Is Verizon Still Selling So Many Old iPhones?

    -----------------------------------------------------------

    Because the Apple sheeple will buy anything to try and make themselves look important to others.

    Verizon is a trap imo. They sucker the

    apple sheeple and others into 2 year contracts, and then overcharge them on their bills.

    People should just save money, buy an unlocked iFone and then go prepaid.

    You can thank me later.

    jussayin-

  • Report this Comment On April 20, 2013, at 11:25 AM, BB104ever wrote:

    Apple is a very wise and adept company, one of the very best in dealing with adversities? Are you kidding me Apple has money who cares they have no clue what to do with it...............like Google they will go into windmills and hydro power and compete with GE. get your facts straight and come back to earth.............oh ya........how much did you get paid for this article..............you should have stayed in school...........or your next job will be a you tube analyst.

  • Report this Comment On April 20, 2013, at 11:33 AM, TMFSymington wrote:

    @d332133, to clarify, note that was "5s" (as in plural), not "5S" the model number. ;-)

    Fool on!

    Steve (TMFSymington)

  • Report this Comment On April 20, 2013, at 12:07 PM, harry2311 wrote:

    Being an original Lisa owner and lover of Apple, I watched over the years as WinTel PC's overtook Apple Macs even though those windows products were quite inferior. In short it all came down to money. Apple simply charged too much for their PC's. The only thing they had going for them was their trademark of "user friendliness" and reliability, but unfortunately that was not enough to overcome the price difference in the PC world. Apple dwindled to has been status.

    Having survived those down years, an IPOD emerged an began a whole new chapter in Apple's history. They chose to manufacture their new products in China thus giving them a huge margin compared to having to overcharge for PC's by making MACS in the states. Since I am not a fan of outsourcing production for the sake of the bottom line, I can't say I liked it, but their profits soared as their trademark of user friendliness won out over all the competitors. They literally took over the music and game market with IPOD, created a market for PADS, and dominated the Smart Phone market. They established a global reach made them a household word far exceeding the PC days. It would be an understatement to say thay their growth was explosive....it was almost logrimithic.

    However, things may now be changing for Apple. The competition has caught on and "user friendliness" is now incorporated in most competitive products hitting the market. They have to compete globally against the likes of Samsung who are great at copying. Most of all, the portion of margins attributed to manufacturing are now on the same footing, so Apple has some serious competition going forward.

    Is the gild off the lilly for Apple? My guess is not in the near term. They are still great innovators and marketers while the others are still copy cats. (Who would have thought there was a Pad market). What is coming next? Whatever it is, you can bet it will be a well thought out and user friendly product and some form of AppleMania will emerge again.

    In the long term, Apple will probably become just another player in a universe of companies making innovative products that we all have to have. But then again, I have long thought that Amazon with its massive PE's was a poor investment, but any serious competition has failed to show up and Amazon has kept finding ways to stay way on top.

    "However", Right now....this day....I am buying Apple. Even though they have lost their wiggle room on manufacturing cost, their reputation and marketing saavy and business skills should keep their marginsand associated profits healthy for at least another year of two.

  • Report this Comment On April 20, 2013, at 12:45 PM, dmh0284 wrote:

    I bought the iphone 3gs and I liked it. It was the best phone I had owned up until that point. I was bummed when 4 months later the iPhone 4 came out, because it was so much nicer than the 3gs.

    The next gen came around, and it was definitely time for me to upgrade, so I got the 4s on opening day, even though I knew that buying the 's' model in the past led to disappointment because the full model refresh (3, 4, 5, etc.) was undoubtedly going to follow.

    I have to say, Apple saw to it that my worries were in vain, because when the iPhone 5 came out, I was still content with my 4s, because honestly, aside from a slightly bigger screen/slimmer case/faster processor, they're the SAME PHONE.

    What I described is an example of what Apple's current problem is. They got too big for their britches and thought they could make tiny incremental updates and charge the customers prices that should only be paid for real upgrades.

    Now that alot of the "cool factor" has shifted from Apple to some of its competitors, Apple is paying a price for their business past business practices. They are going to have to change that, and they know it. Hopefully they can fix it, because I just like good technology. I'm not a fan boy of any company.

    BTW, I plan on buying an android phone on my next upgrade, unless Apple does something dramatic within the next year that recaptures my interest.

  • Report this Comment On April 20, 2013, at 12:54 PM, dmh0284 wrote:

    Harry, you say that they are Apple is a great innovator and marketer, and I ask you - How can you say that this is currently the case? Ok, so they brought the iPad to the market which sparked the tablet craze. That is true. Hell, I would even give them credit for starting the ultrabook revolution with the Macbook air, and I'm thankful for that, because I love that form factor.

    The problem is, they haven't been innovating their current products as they stand. While Samsung and other companies are creating ultrabooks with touch screens, and tablets with wacom pen functionality, and giving smart phone users what they want with bigger screen real estate, Apple is sitting there, stagnantly and defiantly, refusing to provide these features on their products.

    There comes a point where apple is going to have to swallow their pride and accept that they won't always come up with features that the public loves first. They need to start implementing those features before their failure to do so burns bridges with their loyal customers.

  • Report this Comment On April 20, 2013, at 3:04 PM, RandomMeaning wrote:

    On April 20, 2013, at 11:24 AM, Burstedbladder wrote:

    "Because the Apple sheeple will buy anything to try and make themselves look important to others."

    Yes, what a horrible problem for Apple to be burdened with: having hundreds of millions of customers who love their products so much and have found them to be so reliable that they are willing to buy more products from Apple in the future. Thank goodness Blackberry doesn't have the same problem!

    Seriously, do some of you guys even consider the implications of what you are posting? You really aren't doing the Blackberry brand any favors this way.

  • Report this Comment On April 20, 2013, at 3:25 PM, RandomMeaning wrote:

    In regards to Apple's strategy selling older models at lower prices, it makes sense for them. I think it could make sense for Microsoft and Blackberry too if they stick to the formula. Won't work for Android in most cases because the vast majority of their phones are stuck on the OS version they were sold with. But I'm getting ahead of things.

    By selling the older models they can use the manufacturing and suppliers already in place at increasingly lower costs. This is far more efficient than designing, supplying, manufacturing, and marketing lower cost models. Keep in mind, we're talking about smartphones here, not feature phones for the truly low end of the market.

    This allows Apple to sell at different price points with a good profit margin while still staying focused on the high end of the market. Microsoft and BlackBerry should be able to do the same.

    An advantage Apple has which is often unremarked upon is that their OS development has been the most stable of any manufacturer. The current OS can run on most versions of the iPhone. Apps purchased for the original iPhone have been constantly updated and improved at no additional charge and run on the most recent OS version.

    Meanwhile, Microsoft and BlackBerry have abandoned previous versions multiple times leaving users stranded with a dead end phone, OS, and apps. Both companies would do well to standardize on their current offerings and move forward. I think BlackBerry will. I'm not as sure about Microsoft with their upcoming project Blue. We'll find out eventually.

    The main point is that buyers want to know that their purchase will be actively supported for years without fear that they are going to be stuck with a "revolutionary" phone with no future.

    Android is different, it's more of an "as is" phone because most never receive an update to the next OS. Mostly due to the carriers. Most Android buyers accept that as a consequence of buying a cheaper, almost disposable phone.

    So, selling older models is not a problem for Apple since it addresses different price points while delivering solid profitability. If other companies adopt Apple's formula, they could achieve something similar.

  • Report this Comment On April 21, 2013, at 1:02 AM, Snoopy2012 wrote:

    Black Berry is crap berry....it was a great phone 10 years back and it should have been buried already.

  • Report this Comment On April 21, 2013, at 8:12 AM, RandomMeaning wrote:

    On April 21, 2013, at 12:33 AM, BBRYRulesSupreme wrote:

    "Voted worst mobile OS ever."

    The rest is simply a pointless diatribe.

    But since you brought it up, you are badly misinformed. According to JD Powers 2013 Satisfaction survey, the rankings are as follows:

    1. Apple - 855 - winning 1st place for the 9th time straight with a 16 pt increase over last year

    Industry Average - 796

    2. Nokia - 795 - give Nokia credit, this is a huge jump over last year

    3. Samsung - 793

    4. Motorola - 792

    5. HTC - 790 some decline since last year

    6. LG - 744

    7. Blackberry - 732 - a 1 pt decline with the launch of the Z10

    http://www.jdpower.com/content/press-release/5TAb5Uk/2013-u-...

    Interestingly, the industry average increased by 22 points with 2nd through 5th places in a very tight, competitive pack. A side effect of that tight grouping is that Apple is the only company above the industry average. The pervious year it was 1. Apple and 2. HTC.

    And again, certain fans are doing more harm than good in their "support" for their favorite device. I like the fact that BlackBerry is developing and supporting their own OS. I wish them well and believe they could be a successful, profitable company within their niche if they find the right balance. Unfortunately, some BlackBerry posters are tarnishing the BlackBerry brand with their ill considered diatribes.

  • Report this Comment On April 21, 2013, at 8:22 AM, RandomMeaning wrote:

    Addendum:

    Apple was the only company to earn a perfect 5 in JD Power's "Power Circle Ratings". Nokia, Samsung, Motorola, and HTC each received 3 out of 5 while LG and BlackBerry earned 2 out of 5.

  • Report this Comment On April 21, 2013, at 8:27 AM, RandomMeaning wrote:

    Another interesting little tidbit is that the previous holder of 7th place a year ago was Palm. o_O

  • Report this Comment On April 21, 2013, at 8:33 AM, eidsonb wrote:

    The iPhone was innovative in 2007...now...not so much. Apple can release iPhone 19 with iOS 37 and it would still be the same as it ever was, the same as in 2007 as long as it is UNIX based. BB10 by far is the most innovative and advanced OS out there.

  • Report this Comment On April 21, 2013, at 9:00 AM, RandomMeaning wrote:

    Here's an interesting survey from the American Customer Satisfaction Index:

    1. Apple - 83

    2. Nokia - 75

    3. LG - 75

    4. HTC - 75

    Industry Average - 74

    5. Motorola - 73

    6. All Others - 73

    7. Samsung - 71

    8. BlackBerry - 69

    http://www.theacsi.org/acsi-results/press-release-may-2012

    This serves more of a bench mark for future results. Some interesting tidbits:

    "For many users, the advent of smartphone technology has dramatically changed what they look for in a cell phone device. Two smartphones makers, Apple and Research in Motion (RIM), enter the ACSI with very different results. At 83, Apple (iPhone) leads the field by a long shot, while RIM (Blackberry) lags behind as the least satisfying at 69."

    and

    "At 83, Apple’s iPhone is a game changer when it comes to customer satisfaction. No other cell phone company has ever broken into the 80s. Apple’s nearest competitors this year are three companies tied at 75: Nokia (+3%) and ACSI newcomers LG and HTC.

  • Report this Comment On April 21, 2013, at 9:52 AM, RandomMeaning wrote:

    On April 21, 2013, at 8:33 AM, eidsonb wrote:

    "Apple can release iPhone 19 with iOS 37 and it would still be the same as it ever was, the same as in 2007 as long as it is UNIX based."

    That makes no sense. Software, including the OS, is developed and improved over time. By your reasoning BB10, which is based on RIM's purchase of QNX, would suffer from the same fate since it was first introduced in 1982.

    " BB10 by far is the most innovative and advanced OS out there."

    As stated by BlackBerry's marketing. Pretty sure Google, Microsoft, and Apple say the same things about their OS. But saying it over and over again in advertising doesn't make it true. A quick google search reveals companies and partisans from all sides declaring their fave as the best evah.

    But so far that's just opinion. Haven't come across an impartial, empirical study which even addresses the question. Most likely because it's an ever evolving one.

    In fact the only statement I found which wasn't aligned with one group or the other was from the Tech & Science tech blog:

    "The iphone 5 has operating system 6 which is the most advanced OS in the world. This operating system comes with more than 200 features including maps app, photo streams, siri, and passbook organization."

    http://techandscience.com/techblog/ShowArticle.aspx?ID=3468

    Which I don't take as "proof". I want hard data. If you can show a link with solid evidence, I'd love to check it out.

    So really, I think you're left with which one is the most effective. And for that we do have factual data as I have previously discovered with the JD Powers survey and ACSI survey. The area Apple scored the highest in was ease of use, the ability to get things done.

    Some may personally like or dislike that but as of right now, that's the only factual information we have.

  • Report this Comment On April 21, 2013, at 9:56 AM, RandomMeaning wrote:

    Addendum to "I want hard data. If you can show a link with solid evidence, I'd love to check it out."

    Impartial data. Don't waste my time linking me to company websites, fan forums, biased pseudo-journalism hyped on places like Seeking Alpha, and the like.

  • Report this Comment On April 21, 2013, at 11:50 AM, Snoopy2012 wrote:

    Black berry is back and it will soon be back to grave yard for burial...have fun.

  • Report this Comment On April 21, 2013, at 7:05 PM, jandaman12 wrote:

    @ infothathelps

    "Apple is a very wise and adept company, one of the very best in dealing with adversities."

    Yes, Steve Jobs will be truly missed

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