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Apple drops hints about future low-cost iPhones

Maybe just older iPhone models, maybe something new entirely. We report, you decide

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Apple surprised Wall Street on Tuesday when it announced that it had sold more iPhones than most forecasters had envisioned. What it didn't say in its earnings release, however, was how many of those 31.2 million iPhones it sold in its third fiscal quarter were iPhone 5s, and how many were lower-priced, older models.

But on a conference call with analysts and reporters after Apple announced its financial results, it gave plenty of hints, if not exact numbers, and in doing so it raised the eyebrows of those Apple watchers and rumor mongers who expect – and some moneymen are calling for – a lower-priced, entry-level iPhone to appear.

"The iPhone 5 remains by far the most popular iPhone, but we were also very happy with sales of the iPhone 4 and 4S," Apple CFO Peter Oppenheimer said on the call.

Oppenheimer noted that average selling prices (ASPs) of all iPhones sank by 4 per cent year-on-year – about $27. "As we anticipated," he said, "iPhone 4 sales accelerated as we offered more-affordable pricing in emerging and other markets."

Those iPhone ASPs also dropped from the second quarter to the just-reported third, Oppenheimer said, to the tune of about $32 dollars. "And again, that was driven by [product] mix as well – in part, iPhone 4."

Apple CEO Tim Cook, also on the call, noted that the iPhone 4 – and, presumably, the 4S – is helping Apple in emerging markets, although he was careful to point out that the iPhone 5 continues to be the most popular model.

"We saw very strong sales in several of the emerging markets, or pre-paid markets," he said, saying that India was up over 400 per cent, Turkey and Poland up over 60 per cent, and the Philippines up over 140 per cent.

Although neither Cook nor Oppenheimer gave the breakdown of iPhone 4, 4S, and 5 in any markets, it's a safe bet that such growth is due in part to Apple's success in selling older iPhone models to customers in emerging markets who don't want to lay down the premium price of an iPhone 5 – customers who are prime targets for the rumored entry-level iPhone.

"What we've seen is that the number of first-time smartphone buyers that the iPhone 4 is attracting is very, very impressive," Cook said, "and we want to attract as many of these buyers as we can."

Apple started to see the uptick in sales of more-affordable iPhones – read "iPhone 4 and 4S" – near the end of the second quarter. Cook said that Apple extended the availability of that phone into more markets through the third quarter, and that the company is quite pleased with the results.

"We're really happy to provide an incredible, high-quality product with the iPhone 4 running iOS 6 to as many first-time smartphone buyers as we can," he said.

Seeing as how Apple is finding increased success in offering a lower-cost alternative to its flagship iPhone 5, Cook was asked the obvious question – which, questions being allowed only from analysts, was asked in a roundabout way – about whether Apple is preparing to launch a lower-priced iPhone, as has been widely rumored.

Cook, true to his role of CEO at a notoriously secretive company, refused to be drawn out on the possibility of a lower cost iPhone – or, for that matter, on any other products in Apple's pipeline. "We're working on some stuff that we're really proud of, and we'll see how it does," was all he'd say. "We'll announce things when we're ready."

Seeing as how Apple has had success with selling the iPhone 4 and 4S to first-time smartphone buyers, and seeing as how those phones are both more expensive to build and therefore have a lower profit margin than a cheaper plastic-case iPhone might be, it wouldn't be at all unlikely that Apple is, indeed, preparing a new phone for emerging markets and possibly for cost-conscious buyers in established markets.

Or maybe Apple's lower-cost iPhone offering will continue to be the previous generation or two of iPhones. Cook and his brain trust have surely made that decision already, but they're not ready to talk about it.

One thing Cook would talk about was the opinion voiced by many that the high end of the smartphone market has essentially reached saturation, and that the next phase of growth will be accomplished by moving downmarket.

"I don't subscribe to the common view that the higher-end, if you will, of the smartphone market has hit its peak," said Cook. "I don't believe that – but we'll see and we'll report our results as we go along." ®

Bootnote

While iPhone sales were noticeably above analysts' expectations, the iPad didn't fare as well, with the Street expecting around 18 million of the Cupertinian fondleslabs to be sold and Apple reporting sales of only 14.6 million.

That didn't prevent Cook from throwing a dig at the iPad's competition, though. Citing a recent study which claimed that 84 per cent of all tablet web traffic is from iPads, he said "If there are lots of other tablets selling, I don't know what they're being used for."

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