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Apple Seen Raising Share, Maximizing Profits With iPhone 4S

10/17/2011 12:01:00 AM Eastern

NEW YORK – Apple will increase
its U.S. smartphone share and possibly
increase its profit margin per
phone as well with its new iPhone
4S, according to multiple industry
analysts.

Some bloggers were disappointed
that the iPhone 4S doesn’t deliver 4G
speeds over LTE or Mobile WiMAX
networks or come with a display larger
than its predecessor’s 3.5 inches.

But a model supporting 4G LTE
will likely come in the second half of
next year after Sprint begins its transition
from Mobile WiMAX to LTE, after
AT&T expands LTE beyond a current
handful of LTE markets, and after Verizon
further expands its LTE footprint,
analysts added. The phone does support
AT&T’s 14.4Mbps HSPA+ network, which AT&T
markets as 4G, whereas its predecessor supported
AT&T’s 7.2Mbps 3G HSPA network.

Even though the iPhone 4S hasn’t caught up with
the performance capabilities of
some Android phones, senior
analyst Alex Spektor of Strategy
Analytics believes Apple’s North
American share “will likely continue
to grow because of availability on a
new carrier, Sprint, and lower pricing
for older generation models.”

The older models include a free 3G
S with two-year contract and an 8GB
version of the current iPhone 4 at $99
with contract. The iPhone 4 previously
started at $199 for a 16GB version.

The iPhone 4S itself comes in either
black or white at a suggested retail of
$199 for the 16GB model, $299 for
the 32GB model, and $399 for the
first 64GB iPhone.

Analysts forecasting growing Apple
share also point to declining Black-
Berry sales in the U.S., opening up additional opportunities
for Apple to expand share.

To underscore the iPhone 4S’s potential, Apple announced that preorders exceeded 1 million in a single
day to surpass the previous single-day pre-order record of
600,000 held by the iPhone 4.

Analysts were quick to point out, however, that the
iPhone 4S was the first iPhone launched simultaneously
by three carriers, so an apples-to-apples comparison with
previous iPhone introductions can’t be made.

The iPhone 4S became available Oct. 14 in Apple and
carrier stores, other retail stores and online.

Besides increasing Apple’s share, the iPhone 4S might
also be raising Apple’s margins, thanks to a single iPhone
model that operates in AT&T’s 4G HSPA+ network, in the
Sprint and Verizon 3G CDMA networks, and in foreign
2.1GHz HSPA+ networks, analysts said.

The one-SKU-fits-all approach “might maximize profits
by making production lines more uniform,” Spektor said.

At the same time, Apple made sure the triple-network
phone will create demand for additional iPhone sales in the
event that iPhone 4S users want to switch networks after
their initial two-year contract expires. That’s because a 4S
activated on one carrier’s network can’t be activated on another
carrier’s network even after the user’s initial contract
expires, Verizon confirmed.

“Apple designed the way the phone works,” a Verizon
spokesman said. When asked why it was so designed, he
said, “I would suggest reaching out to Apple directly for this
question.” For its part, Apple said TWICE should ask carriers
whether an iPhone 4S user would be able to switch networks.

Another way that Apple kept its costs in check was to
eliminate LTE and mobile WiMAX from the phone. “Keeping
LTE and WiMAX out of the iPhone 4S design will lead
to a lower device costs and higher margins for Apple,”
Spektor said. But there are also other reasons for leaving
out the technologies, he added. “Apple likely decided to
withhold LTE because the technology is still nascent with
bigger components and weaker battery life, and network
coverage is relatively low,” said Spektor. “Apple likely did
not pursue the WiMAX route because of its familiarity with
Sprint’s plans to transition to LTE next year.”

Despite the lack of 4G speeds over the Sprint and
Verizon networks, the iPhone 4S offers multiple improvements
over its predecessor, including a speedier dualcore
1GHz processor compared to a single-core 1GHz
processor, 1080p video capture compared to 720p, rearfacing
8-megapixel camera instead of a 5-megapixel camera,
such new camera features as face detection and 26
percent better white balance, and better battery life, with
3G talk time going to eight hours from seven. Also new
is the Siri automated personal assistant, which responds
to voice questions and commands, and Apple’s iCloud
service, which is also available for previous-generation
iPhone models that have been upgraded to iOS 5.

“But those seeking now-common 4-inch-plus screens
will have to look to devices based on Google’s Android or
Microsoft’s Windows Phone 7,” Spektor continued.

For his part, SNL Kagan analyst John Fletcher said, “Many
were disappointed to not see an iPhone 5, but the 4S still
solidifies iPhone’s position as the product to beat.”

With that in mind, and with the new lower price on an
iPhone 4 and the free 3G S handsets, Fletcher expects
Apple to increase its smartphone market share in the U.S.,
as does Ross Rubin, The NPD Group’s industry analysis
executive director.

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