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Will the Success of iPhone 4S Push iPhone 5 Sales Down?

Since its launch, the iPhone 4S has been in the top three best-selling devices across all carriers in the US, but the global scene is also looking good. Despite a couple lukewarm reviews, Apple sold 3 million iPhone 4S units in the first couple days, followed by many more millions in the next months.

iPhone 4S Apple screenshotLooking back to Apple’s last two quarters’ sales, iPhone sales have skyrocketed, helping the company post its most profitable quarters ever. But Apple is now readying its next-generation iPhone and analysts are looking forward, but opinions regarding the likely success of the iPhone 5 are divided. Some analysts are very positive, due to Apple’s decision to redesign its flagship Smartphone that became the benchmark for every high-end Smartphone, but one analyst thinks the success of the iPhone 4S will hurt iPhone 5 sales in the near future.

BTIG Research analyst Walter Piecyk was wondering if customers will pay $600 for an iPhone, and his answer was no.The basis of his negative forecast regarding the $600 iPhone is the double-edged sword of the existing subsidies. Piecyk looked at the US Smartphone market and found that tens of millions of subscribers are locked into two-year contracts, because they recently purchased the iPhone 4S, and—based on AT&T’s de la Vega words—they won’t be eligible for fully subsidized upgrades when the iPhone 5 becomes available this fall.

As Piecyk notes, $200 is a price tag that performed extremely well for purchasing a high-end Smartphone. By the way, the early upgrade fee of $250 didn’t generate too much interest among AT&Tsubscribers, as they usually wait to become eligible to upgrade with the full subsidy.

AT&T’s de la Vega said he does not expect this interest to rise with the launch of the iPhone 5, which means the majority of the operator’s iPhone customers—Piecyk estimates these to be around 26 million by the end of 2011, and during the three quarters of this year, before the fall, he estimates the total number to reach 32 millions—will be locked into their contracts, so they will not be eligible for an upgrade.

This raises the question of whether these subscribers will pay $600 for the next-generation iPhone this fall and sell their older devices on the second-hand market. Highly probable.
But Piecyk left one important fact out of his analysis: Smartphones have just recently surpassed feature phones in the US—in February—so it seems like there is plenty of room for growth and for new iPhone buyers.

By the way, Apple’s CEO Tim Cook is highly confident about the iPhone’s enticing power, saying the company is set to make the best Smartphone on the planet. The redesigned iPhone 5, its expected 4G compatibility and 4-inch screen are just some of the features driving new customers to US and global wireless carriers.

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