Apple’s new iPhones face upgrade challenges

“Apple Inc., which is expected to unveil the latest version of its iPhone this week, is fighting against two forces to reverse sluggish phone sales: Not only is it becoming more difficult to produce a “wow” factor that excites millions of people to buy a new device, such as larger screens did in 2014, but changes in the way wireless carriers bill customers may cause sticker shock and discourage people from buying up,” Ryan Knutson and Thomas Gryta report for The Wall Street Journal.

“Traditionally, Apple has released major hardware overhauls every other year for the iPhone, which brought in $155 billion of revenue last fiscal year,” Knutson and Gryta report. “But the company is expected to make only small hardware improvements this year, with larger changes coming next year to mark the iPhone’s 10th anniversary.”

“So while consumers typically could pay $200 every two years for a new iPhone, now they must shoulder the full $650 price tag. The amount is usually paid in 24 monthly installments, meaning a phone bill can drop dramatically when the device is paid off. Carriers made the change partly in response to consumer complaints about two-year contracts and partly to get out from under the expensive phone subsidies,” Knutson and Gryta report. “Since the change, which first began in 2013 with T-Mobile US Inc., consumers have been hanging on to their phones longer.”

Read more in the full article here.

MacDailyNews Take: Lots of handwringing.

Again: Calendar fourth quarter will set an all-new quarterly iPhone unit sales record. — MacDailyNews, August 8, 2016

And iPhone sales will return to YOY unit sales growth in Apple’s fiscal 2017.

13 Comments

    1. This lazy reporting makes it seem like iPhones used to be cheaper. All that has happened is that the monthly fee that was tacked into your cell phone bill to pay for the phone (and never disappeared even if you kept your phone longer than two years) has turned into a more transparent loan program with monthly payments. I was a vocal critic of the old practice and find the new approach refreshingly logical and consumer-friendly.

      Even though the cost may be unchanged, however, the captive nature of the old system incentivized people to upgrade at least every two years because the new phone was “free” with a two-year contract. Besides, you paid the same monthly fee whether you upgraded or not – might as well get the new hardware! So it makes sense that many people are opting to stretch the refresh cycle a bit. The new normal may be three years rather than two, with some (like myself) satisfied to use even older hardware (currently an iPhone 4). Apple will still do fine as the growth rate drops to cover the replacement market and the addition of new users. Just as with virtually everything else, smartphones will eventually become a low-margin commodity. That is when the ecosystem and services becomes of critical importance, and Apple has a good start in that area.

    1. Just outright purchase a sim free iPhone. Its cheaper over the long run. AAPL will be around for a LONG time. There will ALWAYS BE a new and improved iPhone XYZ in the future.

      Hell, get a “CHEAP” sim free iPhone SE. Apple’s “CHEAP” phones beat any HemDroid hands down.

      OR

      You can always go with a Note 7, buy (1) get two Free to share with your friends. Hot Deal Man 😉

      1. Bought my last iPhone outright. Sure, it’s a sting to the wallet getting hit with the $750+tax. But once the pain had subsided, I feel so much better knowing it’s mine, not on that pay-n-pay-n-pay Next plan. That and by owning the phone, it’s unlocked AND I dumped the contract and went pre-paid. Cut $20 off the bill and I noticed not one difference.

        1. I prefer interest-free loans. T-Mobile has them (no downpayment, 24 installments), I pay the same $650 over two years instead of up-front. T-Mobile does lock them initially, but since I’ve been with them for a while, they unlocked EVERY iPhone on my plan upon request, usually within weeks from purchase and I never had a problem with foreign SIMs. The monthly plan is essentially the same as pre-paid, except they don’t restrict access to cell towers as they do with prepaid.

  1. If Apple does indeed face upgrade challenges, it’s not because of any policy of carriers and how they charge for phones. For me, I’m only debating because, although I am on the even-number iphone upgrade cycle, the 6 is such a freakin awesome phone, that I don’t know if I need to upgrade!

    That said, waterproofing would sell me instantly.

  2. 1) are these talking heads*, aka, idiots, aware of the annual upgrade program? Or are they that short sited.
    2) the fricking idiots* on CNBC are crying all day about the headphone jack that will be missing.

    1. Spot On. CNBC has NFC….. Yeah.. No… Near Field Communication.

      Bunch of overpaid FANG puppet/dolts. Worse than self righteous MicroSuck entitlement IT Doofuses to be sure.

  3. …”Carriers made the change partly in response to consumer complaints about two-year contracts and partly to get out from under the expensive phone subsidies”

    And here we see the ignorance of both Knutson and Gryta.

    Under the previous “subsidy model” (major misnomer; nobody was subsidising anything), the price of the phone was built into the monthly plan. You pay $200 upfront, then over the next two years of your contract, the carrier recoups the value of the phone. If you terminate, you are hit with an Early Termination Fee, which was always higher than the balance you owed on your phone. The biggest kicker (and moneymaker for carrier) was that if you let your contract expire and go “month-to-month”, you end up donating free money to the carrier (since the monthly rate doesn’t go down). Even worse, since the installment for the phone was bundled in the plan, all of that was taxed as wireless service (in some states, over 20%). Under the new, contract-free model, the monthly installment for the phone is taxed as retail tax (in some states, as low as 3%). Under the old model, consumers overpaid almost $100 per phone in taxes (essentially, a free donation to the IRS).

    So, no, carriers didn’t do this to “get out from under the expensive phone subsidy”. They had to do it in order to remain competitive. Lowering the effective tax rate didn’t hurt either; it allowed them to pass some of that saved money to the consumer.

  4. On the Apple upgrade program
    1. Pay $30 a month for 2 years = $720. Get a new phone and sell the old one for ~$170 if you are lucky from Gazelle (this is the price offer for the iP6 128GB). So total cost per year $275.
    OR
    2. Pay $30 a month for 2 years = $720. Get a new phone every year.
    #2 works for me. Essentially you are paying $360 for a new phone every year and only $85 more a year than holding onto the phone for 2 years.
    Price of the mobile access is not included since it is now separate from the phone purchase. Typically we pay $60 a month per user so that is an area I need to look to make savings in (currently AT&T).

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