Apple Seen Raising Share, Maximizing Profits With iPhone 4S

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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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