Analysis of Smartphone Wars part 3 this week: the iPhone 4S

So this is part 3 of the 3 big news items over about ten days in the smartphone bloodbath. Part 1 was Intel's evolution of MeeGo now with Samsung and called Tizen. Part 2 was Nokia's surprising re-entry to smartphone operating systems with Meltemi. Now Part 3 is the long-awaited announcement of the fifth edition of the iPhone, called the iPhone 4S. (Updated and corrected)

WHATS NEW

Technically, many expected new tech like near field or '4G' ie WiMax and other such stuff. This 4S model is more of an upgrade to the iPhone 4 and not much of an expansion of what that was. Internally there is more power in the CPU and more memory and bigger battery, but outwardly the iPhone 4S is visually similar to the iPhone 4 and the only major technical aspect on the hardware is the upgrade of the camera. It is now up to 8 megapixels. Apple has also done some internal gimmicks to add to the capability of the camera even as the sensor is the same size as in the older iPhone, so the iPhone 4S is able to capture more light - making better pictures. The 4S also adds HD quality video capture and for the first time Apple finally adds video out (a feature we've had on premium cameraphones for five years..).

Its not the best camera on a phone, but arguably, the iPhone 4S has one of the best cameras of the 8 megapixel cameras available today (obviously in most markets there are cameras up to 12 mp resolutions, the Nokia N8 for example has not just 12 mp, it also has a bigger sensor, meaning it captures far more information and thus makes better pictures, especially in low light) and in Japan the top line cameraphones were up to 14 mp .. last year!

The only other major spec change is the dual radio ability, where the iPhone 4S will work on both CDMA networks and GSM networks. This is great news for international travellers on Verizon in the USA for example, whose normal CDMA standard phones were not able to roam in most countries of the world where GSM is the only standard. For us GSM users, this is no gain, we already had the whole world reach on GSM so CDMA adds literally no new countries for us. GSM networks now cover over 90% of all subscribers on the planet. But as the iPhone is also adding Sprint in the USA and KDDI in Japan onto the carriers/operators who offer the iPhone, these are both CDMA based networks so they will appreciate the world-phone ability of the 4S - and on CDMA networks, any heavily travelling business types may well want the iPhone 4S simply for this reason, so they don't need to carry that old GSM phone with them when they come to Europe for example.. But like I said, this only affects the CDMA side of the issue. An expensive component to add, to only serve needs of very few clients; perhaps the gains to Apple would have been far more (to all customers) if rather they would have put that investment into the WiMax radio or NFC radio rather than serving the few CDMA users haha.. But its an Apple choice and now the 4S is clearly the top phone for many on the CDMA networks..

On the software side we get Siri. So speech-recognition gets the 'Apple treatment'. We've had speech controls on mobile phones for much of the past decade, and its been clumsy and not highly used. There are places where speech recognition is very useful - when we cannot use our hands - so that is why the tech has been led by the automobile services related industries (mapping, navigation and in-car systems). And again, the Apple iPhone 4S development priorities may have once again been led by US based needs, rather than global needs. Most Americans do sit in cars to drive to work and back. The rest of the world is not like that, in the rest of the world, the majority sit in public transportation - and in some parts the use of a mobile phone voice services is strictly prohibited - like on all underground trains in Japan. So a service like Siri is very useful for those who drive their car (alone) to work like in the USA, but not very useful in many countries where talking on phones is frowned upon or even prohibited in public transport.

And in common uses? Often we are in a situation where we do want to use the phone but can't make noise - part of what makes SMS text messaging so powerful - so in a meeting or at the restaurant or sitting on the toilet or in the movies etc.. where Siri will not be usable. I am not saying it isn't going to be used - some will love it (car drivers especially) - and no doubt, Apple has made its voice controls far more user-friendly than any we've seen before. But again, compare to Google, who are working on improving the real time translation parts in Android - something that has far bigger gains to users than speech recognition on a mobile phone haha...

So on Siri, I think this is typical Apple hype element, it will wow and excite the North American fans of Apple, in the rest of the world the response will be more muted, and globally, its impact will probably be closer to Facetime (remember the video calling that was supposed to change the world) than the App Store haha.. But we'll see. I do think the speech recognition parts is one of the sci fi vision which seems compelling but in reality is not as useful. In most uses in most cases (at the office, about town, even families at home) the noisy part of speech are not convenient. It is a distraction to OTHERS.. So its best uses are when the user is alone, and that is increasingly not the case haha, most offices are now open plan 'cubicle farm' offices where you try to keep distracting noises to a minimum. 

WILL IT SELL

Its an iPhone !  Of course it will sell !  There will be lines around the corner when it goes on sale 14 October. Apple is headed for a record Q4 (Christmas Quarter, Oct-Dec, as distinct from Apple's 'fiscal' quarterly calendar). And this 4S will help push Apple also to a record Q1 (Jan-Mar) quarter because of the Chinese New Year's gift-giving. The Google survey of 30 leading countries found that China was fourth in the world in the adoption of smartphones (behind Singapore, Australia and Hong Kong) well ahead of all leading smartphone adoption countries of Europe (led by Netherlands) and North America (led by USA). So where we in the West celebrate our annual gift-giving for Christmas and many will give out iPhones - the Chinese do it in the Chinese New Year celebrations which fall into the January-February time frame every year. Expect two monster quarters coming from Apple, driving sales of this new iPhone 4S - and as Apple still sells the iPhone 4 and iPhone 3GS - these two models have components that are now very cheap to manufacture - the profitability of Apple is also very secure (not counting the benefits across to the iPad, iPod and Mac lines at Apple)

The news from most markets the past year has been all good for the iPhone. The iPhone became the bestselling smartphone of Australia, as its second country after the USA where it has become the bestseller. It is also selling very well in some European countries like France and Italy and for an individual phone model - not counting the brand - the iPhone 4 was the bestselling individual smartphone handset model of Finland very recently haha, home of Nokia! This current Q3 (July-Sept quarter) is likely to be 'flat' in sales for Apple because the iPhone 4S was delayed to mid-October shipping date but if so, that is only a blip, the Q4 sales will be certainly record-breaking for Apple.

WHY DELAY

And we've heard plenty of speculation about why the 15 week delay. Normally Apple announces its new iPhone in the Spring and releases it a few days before the end of June, so the big 'many millions sold' numbers get added to the Q2 (April-June) quarter sales as that is traditionally Apple's weakest quarter for iPhone sales. There was a new iPhone ready to ship that was to ship at the last week of June. We do not know if that was the iPhone 5 or a previous version of this iPhone 4S, but what we do know, is that Apple was very proud of its tech innovation for that phone, of making it a mobile phone without the need of a SIM card, so it was to be using a 'virtual' SIM card - and Apple intended to then let the phones roam to different networks with this ability. The carriers revolted and said no way. The SIM card is the only control the carriers have on their customers and were not going to have Apple suddenly shift customers from one network to another, in volumes of masses, millions per country, to then negotiate best prices for Apple customers and then push various Apple-exclusive deals and abilities etc. Just like Apple likes to do with iTunes and the App Store etc, being the ruthless dictator taking full control of that world (.. arguably for end-user best interest, but inevitably stepping on the toes of the established players, like the music industry with iTunes or the mobile operators/carriers with the App Store).

This was definitely Apple's desire and widely reported during the Spring that Apple intended to put a virtual SIM into the new iPhone. And I was here on this blog, saying that it won't happen. The carriers will block that attempt, they will not let go of the SIM card. But I also warned, that if Apple had designed no SIM card receptacle for the new iPhone, that it would have to redesign the iPhone and that might take a delay of a quarter to accomplish.

I might not know much about smartphones or app stores or ecosystems, but I do know my operators/carriers. Thats what my consulting work has supported for long before I started this consultancy ten years ago - and by now, I have personally provided consulting services to over 90 mobile operators/carriers including the company that started the mobile industry and obviously what we'd now call the world's first 1G operator, NTT of Japan (now NTT DoCoMo), the company that launched 2G the digital age in mobile, Elisa of Finland; the company that launched 3G (NTT DoCoMo again) and if you count WiMax as 4G (I don't, I am a tech purist), then yes, the company that launched 4G was KT of South Korea, also a reference customer of mine. And if you don't like the innovators, but prefer to think big in mobile, I have provided consultancy to 15 of the 20 biggest mobile operator/carrier groups of the planet; 7 of the top 20 have even said in public that they have worked with me (Axiata, China Mobile, Orange, MTS, Telenor, TeliaSonera, Vodafone). So when I say on this blog 'this is what operators/carriers think' - I speak of experience and intimate internal knowledge, from my regular consulting exposure to the senior management with those companies. That knowhow is VERY rare. Trust me on this. And we see now, clearly, it was a reason why the iPhone was delayed.

We see the iPhone 4S does not have a standard SIM card slot. It has the same microSIM as the iPhone 4.When did Apple decide to do this change? Not last year when they started to design the next iPhone after the iPhone 4 design was completed. No. The change came this spring after the carriers/operators said 'no way.' See PC World story about it in May. And at that time Apple rushed to the standardizing bodies a new specification for ETSI to create an even smaller SIM than the standard microSIM. Clearly Apple was not prepared to fit any kind of SIM card to the new iPhone.

Understand, first, that Apple submitted the new microSIM standard in May of 2011, tells us it was not part of the intended design of the iPhone 4S. It is a last-minute change. We had heard from Apple they wanted to do a virtual SIM and from operators they didn't want it. We see now who won (the operators/carriers ALWAYS win in this kind of tugs-of-war. Apple learned a very valuable lesson here now, something Nokia learned in 2003-2004 with the N-Gage).

And what does it mean for the actual phone? It means that Apple had to redesign the phone to fit something 'rather large' into the casing (by large, I mean the housing to accept the microSIM card and its electronics to connect to the rest of the phone, in the context of the very slim design of the iPhone 4). That means something ELSE had to be DISCARDED. That Apple had to fit the microSIM on a last-minute change, means that Apple had to toss something else of the same size out of the new iPhone. I am not a radio engineer and not a handset designer, I can't make an educated guess how big the space was and what it may have had, but we did hear plenty of rumors that the new iPhone would have NFC or WiMax - perhaps one of those components was sacrificed to get enough space to fit the microSIM card slot and its connectivity inside the iPhone casing.

It is also possible that a new iPhone 5 had been designed with a bigger screen, different form factor etc, but that design could not conveniently be redesigned in time to fit the microSIM slot, as it would have been designed to run on the virtual SIM. And this change meant that Apple felt they don't have enough time to redesign the new iPhone 5, and rather they redesigned the existing iPhone 4 as we can see, it has near identical shape and size, and mostly similar sized components - including the same size sensor for its camera even as the megapixel count was increased - and the newer CPU and bigger memory would be in line with Moore's Law so they should not take any more space. Some expert phone engineer will no doubt take apart the iPhone 4S and see if it was internally mostly the same or not, comparing to the iPhone 4. Again, I am not even competent enough to try that haha, not to mention, I don't have two iPhones to use for such exploration haha..

We did hear from several sources during the Spring that Apple was trialing several phone form factors in coming to last decisions about the new iPhone. Those decisions were made secondary with the panic about the mistake about the virtual SIM card. This is definitely the only reason why the iPhone was delayed. Apple would have desperately wanted to sell the new iPhone from June, not from October. And the specs we see now on the iPhone 4S? They were more impressive in June than now.. 

And for those with a sentimental disposition, some will be collecting Apple devices, and this iPhone 4S will be obviously the last Apple gadget of the Steve Jobs era, and I would think for collectors the two iPhones they'd want to have is the original 2G iPhone and this last 4S iPhone. Some will buy it for its 'collector value'..

SO THE IMPACT TO BLOODBATH?

What is impact. We all knew the new iPhone was coming. There was gossip it would be a superduper phone, which this is not. This is a very modest marginal upgrade to the iPhone 4. As it looks almost identical, it is not a strong incentive for existing iPhone 4 owners to buy to replace. The very passionate Apple loyalists will of course replace their iPhone 4 with this. And those iPhone 3GS and 3G owners whose contracts have run out, will find this very compelling as an upgrade now, especially the camera now and video recording is so much an improvement from the 3 series of iPhones. For Apple, this is a reliable warrior into the battle but not a game-changer.

The rest of the competition can breathe out now, and sigh in relief. No killer-phone from Apple. Obviously this will be well loved but the competition can live with this. Rival manufacturers have plenty of phones that are similar in form factor but feature higher specs in some areas, from bigger screens to better cameras to more radio elements to QWERTY slider keyboards to pico projectors to 3D displays etc. The other big worry was that Apple would finally split its product line and introduce two new iPhones, a high end model and an entry-level lower-price model. That didn't happen either, so this is particularly good news for Samsung bada and the low-end of Android phones (and would have been good news for Nokia too, were it not for the Elop Effect).

Biggest winners are Samsung and HTC, who have highly popular phones on similar form factors but with more bells and whistles, as Android keeps shrinking the gap to iOS in user interface. This hurts what remains of loyal Nokia users who have rated the Carl Zeiss optics and Nokia camera highly as well as those of SonyEricsson's Cybershot side of Xperia phones. This also opens a bigger door for the new Blackberry touch screen smartphones (because Apple did not move the goal posts) and helps the launch of Windows Phone 7 based phones, again, where Apple did not change the game.

I have heard several times in the past few months, of random noises of unhappiness among Apple users, someone who doesn't feel the next smartphone needs to be an Apple, or that they find some Apple quirks as annoying (no microSD memory card, no replacable battery etc). I think this is natural as the global user base of iPhone keeps growing - the early buyers are super Apple fanatics, and as more are recruited into the family, the less passionate ones come over, and there will be some buyers' remorse where someone misses a feature on a previous phone like QWERTY etc..  But we are nearing the limits in the Industrialized World of where this one form factor iPhone can go (at this high price). I know I have been saying that for two years now, but I do believe it, and even as Apple surprises me with still finding more of a global market, the limits are out there, and we are approaching those. I am saying that this iPhone 4S will set new sales records yes for Apple in Q4 and Q1, but an Apple grow its market share? It may well have lost a few points in Q3 and this new 4S model is not that much of a gain in specs to really fight against the growing army of Androids plus all other new rivals.

What Apple needs next, and to release by end of June, is TWO hot new phones: the iPhone 5 with high tech cool specs like a bigger screen, NFC and WiMax to start with; and the low-cost iPhone Nano, as a evolution of this 4S model with some new stuff but mostly lower costs and perhaps even a smaller screen size to allow the whole phone to be smaller. Both models would need to be visibly different from the current iPhone 4 and 4S..

So the Bloodbath continues. Intel is not dead with MeeGo now becoming Tizen. Nokia is back in the smartphone OS business inspite of Microsoft, with Meltemi. And Apple's iPhone 4S is more an evolution than revolution, which is good news for the rivals, making the whole market space even more exciting for the end of the year race to Christmas. What happens in this bloodbath next? We are now awaiting what HP's new CEO Meg Whitman says of the future and will they remain in smartphones (and computers).

PS thank you Mike Stead for the correction about microSIM.

Comments

[Digithoughts]

Hi there, I don't follow you this time. The iPhone 4 from last summer has the microSIM, the original iPad had it as well, the iPad2 of course and now also the Nokia N9 I'm holding in my hand. So my last 4 gadgets have all had the microSIM, did I misread your post somehow? Keep up the good work btw, I love your blog!

[n900lover]

I think apple in fact _introduced_ "entry-level lower-price model". It is iphone 3gs, which is free on contract, and to lesser extent old iphone4, available for $100 on contract. And I think this move effectively nailed the wp7 coffin, because ms only hope was to massively underprice wp7 phones. But why would now anybody want to buy wp7 phone, when there is iphone for free/$100?

And Elop chose US as his main and strategic market. LOL.

[Troed Sångberg]

I find the analysis of the virtual SIM turning physical and subsequent redesign intriguing, but I have to agree with Digithoughts post above.

http://en.wikipedia.org/wiki/Subscriber_Identity_Module#Formats

[John]

Like Digithoughs, I'm ??? about the microsim.

I'm ok with the 4S not having nfc. Its not like the Galaxy S2 with nfc actually is purchasable unless you're in Korea.

Also glad the 4S didn't come with LTE. The LTE phones at Anandtech had horrible usage times.

[Jonathan]

@Tomi

You claim the dual GSM/CDMA is "expensive to add". Quite the contrary. They are using the same Qualcomm dual mode chip they were using in the Verizon iPhone 4. Now both GSM and CDMA phones are the same -> half the SKUs -> bigger component orders, easier logistics -> cheaper.

[Jonathan]

@Tomi

The whole "Why delay" section is painful to read. Facts you seem to be unaware:

1. Already iPhone 4 did not have "normal SIM", but a micro-SIM. It was not something new and rushed for 4S.

2. iOS 5 nor iCloud were not nearly ready for release in June. Actually both were just announced then. If Apple was going to release a new iPhone with new OS, as they have always done they should have previewed it some months earlier for the developers, they did not. They have done so the years before.

3. There was no chatter from Apple's component providers of an iPhone ramp up before June.

4. A certain Apple component supplier, whom I am not allowed to name, knew last spring that firmware software deadline is beginning of September relating to an iPhone part. No way iPhone could have shipped in June/July.

[sams0n1te]

Tommi your analysis of delay is wrong. Microsim came with iphone 4 and ipad 1. So that is not the reason for delay. It makes no sense. And what apple was proposing in spring was to get rid of the whole sim. So that the phone would be the same and you would buy the contract from the phone. Surprise telcos were not very keen on this.

Again like your analysis for Nokia you are building your thought from phone side of things and technology. That is flawed reasoning.

Why delay, i suppose only few people in apple knows this one. But let's speculate.

Ipad is coming in spring. And it seems that that will be the pattern. In a way this makes sense. Light laptop replacement for the summer trips.

And developer conference is allways on june. It makes no sense to publish phone on summer. Summer is slow.
And launching ipad and iphone few month apart makes even apple fanboys thinking which one to buy. Most people can not buy both two months apart. Even less sense makes the timing of developer conference. The third party developers are given lectures of new MAJOR version of the operating system as it launches. And it is also very very hard for apples own developers to lauch iphone and ipad forks so close with each other. Apple is much smaller company than most people think as far as number of developers.

So which one to move. Iphone is most important product of apple, everything else comes behind. So the major version of the software will come with iphone. And besides iphone is cheaper is US if you buy it from operator (from free to 300 while ipad is 400-900). Ipad is too expensive for most people to be given as gift while the phone might be on the edge of gift price range, And right now the potential number for iphone buyers larger.

Ipods are going away. As we live quater year financial economy you cannot launch both of your products at the same quater of year (or in the same half). You got to spread it more evenly. So iphone will take ipods release cycle.

So it makes perfect sense to move iphone launch near autumn near Christmas,

Maybe this year was exception. As you are solely thinking phones you forget that apple also produces computers. They needed to launch OS/X lion. That makes that product line more competitive. Macbook air is the third wave of apples mobile strategy. Old OS was not optimal on little screens of air. And with Lion apple brought iphone/ipad ecosystem and more importantly style of ecosystem to desktop. (apps from store more limited rules and so on)

Apple also has no server side services, no cloud. So they had to create it, otherwise they would end up like Nokia and microsoft in a few years . Unlike Nokia they did not use they time trying to tell how big they are right now, they were focusing on what is the next step. So they created iCloud.

To create iCloud as an seamless experience for consumers they needed to have OS/X lion which again connect to iCloud. With lion you create documents, presentations etc and they are magically in the phone via icloud. And iphones pictures will go to users computer without users interaction, again like magic. This kind of seamless experience is the core of Apple.

And as I said apples pool of developers is quite small. Creating Lion, Icloud and major new release in one year is a huge task. They might just have needed more time to get it finished. More time to build their next step, so that they would not end up like nokia. On a downward spiral.

Tommi you always tend to focus on phone. You really have to start looking broader picture. These are not phones. These are new bread of information devices.

[Jonathan]

@Tomi

You predict Apple going to smaller and bigger screens. Perhaps, perhaps, but what will happen to the current apps that assume 3.5" screen size? UI would be stretched on the bigger one and made very tiny on the smaller one? Does not sound very Apple-like nor clever.

I see very little need for a small model, the more gains with the smaller screen Apple goes for the more it will distort the UI's of existing apps. An inexpensive model is already there, called 3GS, it could of course be even more inexpensive, but Apple is not going for pure market share, that would be foolish. They go for profit.

Also there are quite hard limits to how big a phone can be. The corners of the screen must be reached one handed. 4" is already a bit too much in my opinion.

[Mike Stead]

Is the Apple filing in May 2011 for the device to be GSMA-type-approved with a USIM? Instead of being a *new* standard (which micro clearly isn't)?

http://en.wikipedia.org/wiki/Type_Allocation_Code

[darwinphish]

Tomi: Your analysis here brings up some very good points, but you missed or downplayed others. The iPhone4S has an A5 chip which will improve performance and user experience, especially with games and new multi-tasking capabilities in iOS5. In fact, you make no mention of iOS5 and the new iCloud service. Apple announced these months ago and its quite clear their current strategy is to focus more on them and not as much on hardware and design.

More importantly and much to my surprise, you barely discussed the new pricing of the 3GS and the iPhone4. You have stated many times that Apple needs a lower priced iPhone to compete in the mid-range smartphone market. The 3GS, which will run iOS5 and sync with iCloud, is clearly their answer. Its priced at $375. Yes, its a 2 year old phone, but it still sells and will likely continue to.

Obviously it is far more cost effective for them to get the most out of their existing products than to introduce something new at the lower end. It's also, I believe, better not to compromise on user experience by introducing introducing a smaller form factor. Apple sells software and experience more than they sell hardware and specs. As long as the old models run the current OS and most apps, they will sell.

Apple now has 3 phones on the market ranging in price from $375 to $849. They also dropped the price of the iPod Touch, so entry into the world of iOS starts at $199. I am very curious how all of this will drive market share numbers. There is little doubt the new iPhone4S will sell and that Apple will report massive sales over the next 6 months. What is less obvious, though potentially more impact-full, is how well the 3GS sells going forward. It may very well play the role of the iPhone nano you and others have been calling for.

[Creature_NYC]

Curious about your thoughts on carriers. If you had to choose one for the NYC area which would it be?

I'm on AT&T and would like to leave b/c coverage sucks. However, I am grandfathered in on unlimited data and I also read that their data speeds are better. Data is important to me and I probably use about 2GB a month, but what's the use if I can't get a connection. We all know about Verizon's coverage, so Sprint is the real wild card for me.

[JM]

I agree with Jonathan regarding screen sizes, Apple will not allow what is usual on Android (multiple screen sizes and resolutions), is not the Apple way.

Also I think that you are missing the iOS5 argument, iOS5 is the best selling argument for the new iPhone 4S (even for the old one at $99), just take a look at today leaked images of the Nexus Prime and Ice Cream Sandwich...it rememebered me Symbian, those Symbian users that were complaining about the botton bars and waste of screen size will be at home with ICS.

iOS5 is still the best selling point for the iPhone 4S.

[Robert]

The wife owned a '96 M-B C220 w. only 48000+ mileage. We were both very happy w. it; it still looked great(kept in garage), got 30+ MPG on hiway, was nice road car for trips, and was Paid For. Then the new body style came out, and suddenly her car was "over 12 years old"! Tragedy! Of course, then she had to get new shiny car, a Coupe of all things, nice for younger set, but not so good for travel. Or carrying things. Or trying to sleep in back seat. Worse MPG. And she has no use for all the new power, as she drives it only around town. But, she loves it because it "looks great!" And she got a good price when selling a 12 year old car.
My point? M-B, and Apple, build quality products that don't change every 2 years, so resale value is high. Owner satisfaction stays high. Even when looks change, value is still there in older product. So Steve did not see need to be constantly making changes for change sake, or to keep up w. competition. Competition? Most products are built to compete on price, not superior quality. Fords are available for price conscious, but if perceived quality is paramount, you go upscale.
Android is not upscale, it is not 'a common' OS(which flavor does your Android run, and how easy are upgrades?), and those phones are loaded w. OEM froo-fra. And if you really want to get to the power, you have to Root it? That's a phone for Everyone?
iPhone may or may not continue to be top phone in US, but it will always be an iPhone. Steve will see to that.

[E.Casais]

> Apple now has 3 phones on the market
> ranging in price from $375 to $849

As sams0n1te stated, one should look at the broader picture.

In Switzerland, the 3GS isavailable for 399 CHF, i.e. 432 USD. And that is the cheapest price (the median price is 489 CHF - 529 USD). That is expensive for an "entry level" phone.

As for the other models, the lowest prices for model 4 range (depending on memory and colour) from 543 CHF to 749 CHF -- 588 USD to 810 USD. Median prices are substantially higher, ranging 556 CHF - 844 CHF (602 USD - 913 USD).

The 4S is not yet available, but the announced prices range from 1295 CHF to 1695 CHF -- 1402 USD to 1835 USD, no doubt skimming early adopters and Apple fans. I expect this level to be untenable.

All variants of the iPhone remain high-end, expensive devices.

Since customers are ready to shell money for them, I do not see why Apple would compromise its image and revenue by delivering a "low-end", substantially cheaper model. Making sure that older models keep a high price also means that they keep their value in the second-hand market -- a relevant factor for people who
migrate from one expensive phone model to another, and cover part of acquisition costs by selling their older device (in a completely different sector, remember the Mercedes cars of once?)

[darwinphish]

@E.Casais

iPhone pricing in Switzerland is highly influenced by local carriers and market. My guess is that Android and other smartphones are similarly over-priced. In fact, I just took a quick look and, on contract, the 3GS and 4 undercut a number of smart phones right now.

The point here is that with the 3GS Apple is lowering the iPhone's entry point. Is it offering entry level pricing or competing at the low end; of course not. However I am sure there is a large number of potential users who have not bought an iPhone because of price. Whether the 3GS represents a drop from $649 to $375 or from 1295 CHF to 399 CHF, its still a significant difference.

[kevin]

It's obvious the decision to not release iPhone 4S in June, was made by March (and I presume much earlier, even before the Feb Verizon launch). If Apple was going to release iOS 5 in June, they would've held an iOS 5 developers meeting in March (like they did for iOS 4 and iOS 3) so that developers could add the new iOS 5 capabilities for a June launch, concurrent with iOS 5 release and iPhone 4S. But Apple did not call a meeting in March.

Sources also expected Siri to be announced at the June WWDC but it was not. And now, even at launch, Apple has chosen to still label it beta because they didn't make it available to developers in Aug and Sept for testing (like they did for iCloud).

The smart money would bet it was clear to Steve Jobs in Feb (or even Dec) that Siri would be nowhere near ready by June.

As for form factor, Foxconn said last year that it's not easy to build the iPhone 4 case. They had to buy many millions of dollars worth of manufacturing and test equipment, and the long lead on equipment delivery led to a slow iPhone 4 production ramp. By using the same form factor, Apple and Foxconn will continue to use that same equipment, which can churn out over 20m+ iPhones per quarter, and expand to churn out more with little added risk or new testing. Given that Apple's #1 problem has been the lack of supply of iPhone 4, not customer demand, this will solve the problem at least for the next 2 to 3 quarters.

[KDT]

Tomi,

I've said for years that the reason that you are so often proven wrong when it comes to Apple is because of your myopia. You're thinking that Apple is playing the same phone game that other manufacturers are playing but they are playing a "platform" game. The iPhone, iPod, iPad, Mac, and iTunes all work together.

Apple was *never* planning to release the iPhone in June and that had *nothing* to do with the virtual sim. There were *no* rumors of a supplier ramp up in March. There was no iOS preview in March. iOS 5 was nowhere near ready in June. You have been wrong about your predicted sales of Apple *every quarter* this year.

As far as FaceTime, no one thought that FaceTime was going to be that big of a deal. Honestly, who cares? Apple definitely doesn't. Why would anyone use FaceTime which is iOS and Mac only and only works on Wi-Fi when they can use cross platform video chat apps like Yahoo Chat, Skype, etc. on the iPhone.

[E.Casais]

> The point here is that with the 3GS Apple is
> lowering the iPhone's entry point.[...]
> However I am sure there is a large number of
> potential users who have not bought an iPhone
> because of price.

This is true, but has also been true for the past 3 years -- with the 3G and 2G already playing the same role. What I do not understand is why this situation is supposed to be something remarkable now, and why some people continue to predict the arrival of an "entry-level" iPhone when Apple has been consistent, and successful, in its approach of releasing high-end devices while selling (well) older models.

As far as Switzerland is concerned: the market plays a role, I doubt the operators play a determinant one: all these iPhones can be obtained unlocked and contract-free; there is no operator exclusivity as in the USA (one can get packages with iPhone 3GS from all three main operators and several MVNO) and all networks are GSM.

[darwinphish]

@E.Casais

Apple has always kept the previous year's model around after launching the newest version. This is the first time they are keeping the previous 2 versions, allowing for a much bigger price gaps in their lineup.

Also, the iPhone 3GS was advanced enough when launched to still be very usable and desirable two years later. Most importantly it can run the most recent OS (though how well still remains to be seen). I do not think you could have said that about the iPhone 3G last year or the original iPhone 2 years ago.

I will be interesting to see how long Apple can keep its older models in the market. Based on Apple's pricing, the 3GS has only depreciated by 30% over the past two years -- remarkable in this industry. If they can continue to amortize upfront design and tooling costs over 3 years (instead of 2 or less) they will be even more profitable.

[Jim]

KDT is pretty much spot on. I don't think there was any kind of delay to "redesign" the hardware at all.

Also, I don't know anyone who cares that their iPhone "lacks" a pico projector or a 3D display -- the actual need for such things has got to be limited to a microscopic (or even "picoscopic") subset of phone users.

Some features may look great "on paper" but are largely irrelevant (and, who needs a projector when you've got AirPlay?).