How Is Apple Still Selling So Many Aging iPhones?

Over the past two quarters following the release of the iPhone 5, Apple (NASDAQ: AAPL  ) has been caught off guard by surprisingly strong demand for the iPhone 4. The company doesn't disclose specific product mix data, but management has acknowledged that the iPhone 4 has been in high demand.

Last quarter, Tim Cook acknowledged that the iPhone 4 was among numerous products facing supply constraints, saying the "iPhone 4 was actually in constraint for the entire quarter and sales remained strong." The other products that were having a tough time keeping up with demand were new devices like the iPad Mini and iMac, whereas the iPhone 4 was initially released in 2010. The iPhone 4's production chain is mature at this point, so the only reason it would be short is if Apple was truly caught off guard.

This quarter, the iPhone 4 is seeing "significant interest" in China, as Apple has implemented several initiatives to make it more affordable and appealing to first-time smartphone buyers. CFO Peter Oppenheimer attributed the decline in iPhone average selling prices to "an increase in the iPhone 4 mix."

Investors also know that half of the 4 million iPhones that Verizon (NYSE: VZ  ) just activated were older iPhone 4 and iPhone 4S models, the same 50/50 split as the 6.2 million iPhones activated the quarter before. That's over 5 million older iPhones sold on Big Red's network over the past two quarters, demonstrating pent-up iPhone demand at the $0 and $100 subsidized price points.

In the fast-paced smartphone market, three years is an eternity. How is Apple still selling so many three-year-old iPhones?

On paper, the iPhone 4 has inferior technical specifications to nearly all the newer devices available for competing platforms at the same price point. Strong iPhone 4 sales speak to the strength of Apple's platform and ecosystem.

Apple is the only smartphone OEM that can effectively shift focus away from pure specs (although not entirely) -- a war that other commoditized vendors are forever destined to wage. Instead, Apple conveys a value proposition that includes a differentiated software platform, strong complementary content offerings, and higher levels of customer service and satisfaction.

For all of these reasons, a respectable number of consumers ignore the larger displays, faster processors, and speedier data connections of newer devices and are going with an aging iPhone. No other smartphone maker could sell such an old device this well.

Apple's unique ability to sell old devices is a major competitive advantage. Still, 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 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 (8) | Recommend This Article (5)

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 25, 2013, at 12:56 AM, Plimeter wrote:

    You've nicely communicated what most Apple bears don't get. It's not always about the specs. It's more about the overall user experience, and I believe that Apple's robust and sticky ecosystem is what differentiates Apple from the crowd. The longevity of the iPhone 4 is a strong argument supporting this point.

  • Report this Comment On April 25, 2013, at 1:34 AM, verces wrote:

    APPL is no longer a great investment, at 40% drop in value, no dividend can compensate that at all. And now with BBRY's new device getting traction and a stock valued at 70% discount - i think its a no brainer to look at the opportunity on hand presented by new management of the company this time.

    Life is like a wheel, SJ copied BB in the past and now it is BB turn once again.

  • Report this Comment On April 25, 2013, at 2:01 AM, vulcan747 wrote:

    verces - Apple will crush your BB like a twig.

    Too little too late for the party and no Apps to boot.

    Apple is spending 4 billion on R&D that will shock the universe - you have an archaic keypad. The HTC train of failure is leaving the station and you and BB have a reservation.

  • Report this Comment On April 25, 2013, at 8:33 AM, gcp3rd wrote:

    LOL VULCAN747! And it's a train to nowhere. The time to buy Apple is now. How many gazillions in the bank? Still selling iphone4's for crying out loud...oh yeah, and 500 million+ itunes accounts all set to go for ecommerce and digital wallets...oh yeah, and digital/internet tv hasn't even gotten started yet. There is a long, long run for consumer tech and Apple is not done with it by a long shot.

  • Report this Comment On April 25, 2013, at 9:40 AM, ATTCustomer wrote:

    The only reason I have an iPhone is so I can keep my $30 unlimited grandfathered data plan.

  • Report this Comment On April 25, 2013, at 10:57 AM, cityperson wrote:

    How does Apple get away with selling a four year old iPhone? Simple it is better then the 5. The demand is there so why not keep making and selling the four year old iPhone 4. Plus most want to keep their data plan.

  • Report this Comment On April 25, 2013, at 4:23 PM, radio15 wrote:

    Actually it goes to show you that people believe that the iPhone 4 or iPhone 4s are interchangeable with the iPhone 5. When looking at the exterior of the phones, it's hard to differentiate between the phones. Clearly the iPhone 5 is faster with better performance and better camera. If Apple created a different looking iPhone, it would be a hit without a doubt. I have been holding onto my 4s because the 5 isn't different enough to make me want it. Apple had better have a huge amount of iPhones ready if they update and upgrade the exterior of the 5s. Droves of people will want it. Look for Apple to be at $600-$650 share by Christmas. I don't even own shares of Apple by the way; just adding my two sense!

  • Report this Comment On June 07, 2014, at 2:12 AM, HorryMiner wrote:

    Warning from CNET: iPhone "Restore" does not delete personal data!

    Then no matter where and how much selling your iPhone, you should erase all personal data. watch this video:

    http://www.youtube.com/watch?v=wH74CdMRZAY

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