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Apple’s next iPhone could see weaker demand, upgrade cycle to blame

The iPhone 4S is Apple’s most successful smartphone ever. The Cupertino, California-based company sold more than 3 million units during the device’s first few days of availability, and millions more in the weeks and months that followed. While the phone’s similarities to the previous-generation iPhone 4 caused a bit of preliminary disappointment, sky-high sales helped Apple post the most profitable quarter in technology company history. Looking forward, however, one industry watcher believes Apple’s unprecedented success with the iPhone 4S could come back to hurt its next-generation iPhone launch later this year.

AT&T chief executive Ralph de la Vega made it clear that smartphone subsidies aren’t going anywhere for the time being, putting to bed the concern that decreased subsidies might have a negative impact on iPhone sales. BTIG analyst Walter Piecyk notes that these subsidies are a double-edged sword, however. Tens of millions of subscribers in the U.S. and abroad who recently purchased the iPhone 4S are now locked into wireless service contracts, and they will not be eligible for fully subsidized upgrades when the next-generation iPhone launches this fall.

“For over a year, AT&T has enabled its customers that are 6 months into their contract to pay $250 to obtain an early upgrade,” Piecyk wrote in a recent research note after attending an AT&T analyst meeting. “This would effectively enable the customer to buy the basic level iPhone early for $450 rather than wait the full 21 months to reduce that price to $200.”

The analyst continued, “AT&T’s de la Vega indicated that this offer has generated very little interest from their customers, who typically end up waiting ’till the day they are eligible’ before upgrading with the full subsidy. Furthermore, he does not expect customer interest in this early upgrade offer to increase notably with the expected launch of a new iPhone later this year, when we estimate that the vast majority of AT&T iPhone customers will not qualify for an upgrade.”

Apple’s iPhone launches tend to attract more interest than average device launches and there will likely be a number of iPhone 4S owners willing to pay full price for Apple’s sixth-generation iPhone. In the past, numerous iPhone users under contract have purchased new devices at full price and then recouped some of that expense by selling their previous-generation models on sites like eBay and Craigslist. The sheer volume of recent iPhone 4S buyers could very well impact demand for the upcoming iPhone, however, and at least at AT&T, this seems like it may be the case.

“We then further questioned de la Vega on whether the impending launch of the iPhone 5 would cause AT&T to offer a tiered early upgrade fee option for customers that were deeper into their contract to perhaps deliver an effective $350 price point into the market and de la Vega flatly said no,” Piecy wrote in his note. “The implication is that a large majority of AT&T iPhones will not be eligible for an upgrade subsidy at any level and AT&T’s expectation is that those customers will be unwilling to pay $600 for the new phone.”

Apple’s next iPhone is expected to feature 4G LTE connectivity, a taller 4-inch display and an all new design.

Zach Epstein

Zach Epstein has been the Executive Editor at BGR for more than 10 years. He manages BGR’s editorial team and ensures that best practices are adhered to. He also oversees the Ecommerce team and directs the daily flow of all content.

Zach first joined BGR in 2007 as a Staff Writer covering business, technology, and entertainment. His work has been quoted by countless top news organizations, and he was recently named one of the world's top 10 “power mobile influencers” by Forbes. Prior to BGR, Zach worked as an executive in marketing and business development with two private telcos.