Apple gets smart with iPhone 5: the strategy guide

By Jonny Evans

From Russia we have additional confirmation of this morning's Reuters claim that the Apple [AAPL] iPhone 5 won't hit the shops until September, as we already knew. So how will Apple maintain sales momentum and land a killer blow against the Android menace? Focused sales efforts in growth areas along with strategic price changes, that's how.


Is the iPhone an iPod now?

Apple's move to schedule new iPhone launches to September could be for one or more of the following and many other reasons:

An Apple filing yesterday against former frenemy, Samsung, reveals that, "As of March 2011, more than 108 million iPhones had been sold worldwide." That figure equates to 18 million iPhone sales, way above the 16 million sales Wall Street has expected.

Sales, Samsung and strategy

The filing also confirms Apple's sold over 60 million iPod touch devices and 19 million iPads, all by "March 2011". What isn't clear is when in March Apple's figures account to/for.

[This story is from Computerworld's Apple Holic blog. Follow on Twitter or subscribe via RSS to make sure you don't miss a beat.]

Given that Apple purchased $5.7 billion in Samsung components last year, you'd think Samsung might have been a little more imaginative when it came to designing its iPad knock-offs. And perhaps using the exact same ARM chip as the iPad used which Samsung also manufactured may go down in history as a bit of a mistake.

Now there's two key takeaways:

-- Through its legal filing, Apple has effectively disclosed some data as to its sales performance, preparing investors for what may transpire to be an on target quarter. (Though Mac sales are the wildcard in this report, and iPad 2s were only available a very short time in the quarter).

-- Through the Reuters report claiming the iPhone 5 will ship in September, investors are warned not to expect a June earnings hike on back of new iPhone sales.

Investors will be looking to Apple's bottom line.

That's because there's a challenge to a September launch of the new product -- how will Apple maintain iPhone sales in the meantime? Bear in mind the March-July quarter typically sees some flatness in iPhone sales as potential customers await new models. This could be a pattern Apple hopes to manage by moving to introduce future new iPhones in the busier Christmas quarter.

Maintaining iPhone 4 sales

The timing is interesting. Apple faces stiffening competition from Android devices, though, in keeping with the entire post-tsunami industry, no one has the components they need -- apart from Apple.

Apple is taking investment positions with new partners, including Toshiba, for the production of smartphone screens.

Apple has cut the cost of the iPhone in Russia by 3,000 Rubles ($100), because of low demand. Low demand isn't so surprising when you consider a 16GB iPhone 4 costs a horribly high 31,900 Rubles ($1,029) in Russia.

RIA Novosti claims Apple cut prices to stimulate sales. It also confirms the autumn iPhone claim. "Moreover, it is getting harder to sell iPhone 4 ahead of the sales of iPhone 5, which scheduled to go appear in stores in autumn, the source said," it states.

The addition of the Russian report to today's Reuters claim and previous speculation means we now enjoy multiple independent sources who all agree to a September iShip date. I'd argue this makes it a definitive claim.

iPhone 5 FAQ

What else did we learn from Reuters?

  • iPhone 5 production begins in July/August
  • iPhone 5 will look similar to iPhone 4
  • Apple is diversifying component suppliers outside of Japan

And what do we already know of iPhone 5?

  • It will run the new A5 processor (twice as fast as the existing chip with nine times the graphic performance)
  • It will be available in white. 64GB models will be available
  • iPhone camera will rise to 8MP.
  • The basic design will be the same, but the Home button will be replaced with a capacitive controller, so you'll have a larger usable screen area.
  • Google Voice-like Voice control via the company's data center
  • Apple Maps, based on Placebase acquisition is possible.
  • Very likely to carry a combined GSM/CDMA radio
  • iPhone 5 will support iPad 2-like Smart Covers
  • LTE/4G support (I'm thinking this may not appear in this version, as the networks aren't really ready yet).
  • Facetime via mobile carriers. But like Voicemail, not every carrier will enable this feature
  • HD output
  • Same Retina Display -- just more of it (above)
  • Location aware and tied to social networking implementations
  • And, hopefully, wireless sync. And Thunderbolt support (so the phone will be even thinner).

The challenge for Apple is that with this amazing new iPhone 5 on the way, backed-up by iOS 5 and potentially now joined by new model iPods equipped with iPhone-like features, (the iPhone nano will be an iPod nano, with a phone built-in) can Apple maintain sales of its existing models?

Strategic sales and marketing

I think Apple will implement price cuts. These would impact margins slightly, but would also stimulate strong sales. Apple already has component deals competitors can't match, along with a huge fighting fund, so why not make use of it? Android-based competitors could never hope to match the existing feature-set of the iPhone 4 if Apple cut the cost of the device. The move to cut prices in Russia shows us Apple is quite capable of strategic attack.

Using a less blunt strategic stick, the company will also likely point investors toward its activities in the world's most active mobile phone market, the Asia Pacific.

ITU figures released today tell us, "Most of 2010's mobile growth was in Asia-Pacific, which saw the number of mobile cellular subscriptions grow by 490 million (of 630 million globally), to reach 2.6 billion."

Asia-Pacific now has over half the world's mobile cellular subscriptions. This is why Apple has been driving such a hard game in China. Strategic iPhone price discounts in the Asia Pacific territories alone would positively impact the company's business.

With a view to yesterday's report, interesting too to note there were more mobile broadband subscriptions in the developing world in 2010 (309 million) than there were in the whole world in 2007 (307 million), just three years earlier.

Summing up: Apple will not ship the iPhone 5 until September, when the company will introduce a new range of iPod derivative products. Diversifying its iPhone line will enable the company to storm into the Christmas shopping quarter with a range of great products designed to kick the company's Android competition into touch. Meanwhile Apple will engage in strategic price discounting and focused attempts to address significant growth markets to maintain current momentum, while the next few months are likely to be marked by plenty of activity in Apple's other great product, the Mac -- and the cloud.

Caveat Emptor: Apple-watching is not an exact science. It is possible the Russian claim simply confirms iPhone 5s will ship later in Russia than elsewhere, hinting an earlier launch in some territories. It is also worth considering these claims have emerged once again on Apple earnings day....

Your thoughts on this, please, in comments below. If you enjoyed this article, please follow me on Twitter so I can let you know when I make my next reports available here first on Computerworld.    

Copyright © 2011 IDG Communications, Inc.

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