Apple iPhone 5 Demand Weakens: Could Price Cuts Bolster Sales Until The Release Of iPhone 6?

Analysis

 @redletterdave
on January 14 2013 1:31 PM
Apple iPhone 5 With No Contract Now Selling At Walmart On Straight Talk Wireless, Price Listed At $649
The iPhone 5 is Apple's sixth-generation smartphone. Reuters

The iPhone 5 is currently available in 101 countries around the world, but despite the phone's accessibility, Apple has reportedly rolled back on its component orders in response to "weaker-than-expected demand," according to The Wall Street Journal.

"Apple's orders for iPhone 5 screens for the January-March quarter, for example, have dropped to roughly half of what the company had previously planned to order," sources told the Journal. "The Cupertino, Calif., company has also cut orders for components other than screens, according to one of the people. Apple notified the suppliers of the order cut last month, the people said."

The sources did not provide any insight as to why Apple is slashing its component orders.

Has The iPhone 5 Lost Its Touch Already?

The iPhone 5 has been available on U.S. shelves for four months -- since Sept. 21, 2012. And yet, with reports that demand for the phone is waning, should Apple be especially worried?

First of all, the cut in components is somewhat typical, especially for a product that is no longer officially "new." With the holiday push come and gone, it's likely that Apple no longer needs the high levels of production formally required to sate the December demand.

That said, however, investors would be wise to closely watch what Apple does following this effort to downsize production for the iPhone 5, as this move may be a response to fewer customers, as opposed to focusing on the horizon.

It's also possible that the increasingly short product life cycles for iPad and iPhone have tightened the sales window on every released iOS device.

How Should Apple Boost iPhone 5 Sales?

Who wants to buy an iPhone 5 in January if its replacement is reportedly on its way in May or June? Many customers may be thinking this exact thought, considering how Apple continues to increase the rate of its hardware releases each year.

Apple may want to consider a price cut to iPhone 5 even before the "iPhone 6" arrives. Since December, Walmart has proved very successful in selling iPhone 5 units, thanks largely to incredible discounts and an exclusive partnership for contract-less unlimited, talk, text and data plans.

Apple may want to pursue this route -- reducing the price of its current iPhone halfway through its life cycle -- to sate customer demand before it's ready to release its next-generation device.

Apple Shifting Its Attention Already

With 2012 in the rear view, Apple is likely ready to shift its attention to its next generation of iOS devices, including new iPhones and iPads on the horizon. In fact, Apple's next-generation iPhone, which is rumored to offer a "low-cost" alternative for customers in emerging markets like India and China, may be arriving sooner than we think.

"Apple will roll out a low-cost version of the iPhone for China and other emerging markets in the second half of 2013, according to supply-chain sources," DigiTimes said last week. "Some sources claimed that they have seen the sample of the low-cost iPhone, which will come with a larger display, meeting the prevailing trend for the adoption of 5-inch displays for high-end models. They added that the low-priced iPhone will also have a brand-new exterior design."

A low-cost iPhone makes a great deal of sense for Apple: Thanks to newer, smaller, cheaper, and more power-efficient chipsets, Apple can afford to build an entry-level to mid-range smartphone on top of the current iPhone – either bigger like the Samsung Galaxy S3, or a smaller “iPhone Nano” – to appeal to markets that can’t quite afford Apple’s most popular iDevice. Furthermore, if Apple’s iPhone 6 was not only cheaper but also smaller too, the phone would greatly appeal to the Asian markets.

DigiTimes isn’t alone in believing Apple’s working on a newly sized, low-cost iPhone. On Jan. 2, Topeka Markets analyst Brian White said Apple is likely to release its next iPhone in more colors and screen sizes, implying Apple might sell an iPhone smaller or larger than the current iPhone 5, or even previous-gen iPhone 4S or 4 units.

However, it’s important to note that analysts, and even DigiTimes, can’t always be trusted at their words. For example, DigiTimes  correctly predicted last December that Apple would launch two new iPads in 2012, including an iPad with a 7.85-inch display called "iPad Mini" in Q4 2012, and that's exactly what Apple did. On the other hand, DigiTimes incorrectly reported that Apple chose Samsung's quad-core Exynos processor to power its iPhone 5, when in fact Apple went with its own custom-built A6 chip. In other words, listen to the information, but understand that these are only rumors.

The iPhone 6: What We've Heard So Far

Besides different screen sizes and colors, we've heard that a major focus in the iPhone 6 will be the display. Apple might be going back to the drawing board, as the company is reportedly dissatisfied with the in-cell technologies used to make the iPhone 5's display, and is considering other options.

Jan. 3 report released by The China Times said Apple might switch to a "Touch On Display" panel currently in development at Taiwan-based Innolux Corp., which has reportedly been licensed to use Sharp's proprietary IGZO display technology.

However, whether or not Apple chooses Innolux to make the next iPhone's screens, Apple is likely going to use Sharp's ultra-thin IGZO display technology for the next iPhone.

In late December, DigiTimes and Apple analyst Horace Dediu both mentioned Apple’s alleged investment in the ultra-thin IGZO displays produced by Sharp, predicting inclusion of the technology in Apple’s next batch of iOS devices, including iPhones and iPads. Dediu also pointed to Apple’s recent $2.3 billion investment in “product tooling, manufacturing process equipment and infrastructure,” believing the cash was used to help bail out Sharp, which had been in financial straits in 2012. Sharp is reportedly going “all in” on IGZO technology, so it’s possible Apple saved Sharp to leverage its investment in the next generation of displays.

IGZO display technology is not only thin and tough, but it can even handle higher screen densities than Apple’s Retina Display, which is visually stunning on its own. IGZO displays can reportedly handle display densities north of 330 ppi; for a quick comparison, the new iPad 4 can only achieve 264 ppi.

One of the better advantages of IGZO display technology is its lower power consumption. Most Apple products, from the iPhone 5 to the iPad 4, require cartoonishly big batteries to achieve just eight hours of power -- this is because current-gen Retina Displays are extremely power hungry. If Apple wanted its iPhone 6 to not only last longer during the day but also charge faster when plugged in, IGZO seems to be the way to go for the next generation of iOS devices.

Giving credence to these rumors, Taiwan-based AU Optronics (AUO) reportedly plans to develop a Retina Display for the next-generation iPad Mini, which may require IGZO technology to pull off a feasible Retina Display.

Besides these display rumors, we haven't heard too much about Apple will release in the iPhone 6. However, we have seen a few interesting patents: A patent filed in March but published in September described tactile keyboards, flexible displays and laser microphones and speakers built into an iPhone, designed to conform to the user's needs. Flexible displays would allow for easier holding and typing, while the highly advanced tactile screens would create buttons when needed so the user can feel "keyboard" letters as they type, or touch the topography on Apple's Maps. 

It's wishful thinking that Apple would include all these technologies in the iPhone 6 rather implement them over time, but it's certainly fun to think about.

Apple sold 26.9 million iPhone units in Q4 2012, and plans to announce sales figures for the iPhone 5, iPad 4 and iPad Mini during the company’s Q1 2013 earnings report, scheduled to release on Jan. 23.

Share this article

More News from IBT MEDIA