The earnings for this quarter are in, and we essentially see cheaper iPads fueling unit growth, with a corresponding loss of gross margins, while the more expensive models show no or maybe even negative growth.
The iPhone numbers are a strong indication that we are approaching a stable level in high end unit share, with people now feeling that they have mostly enough iPhone in their pockets. Still when we look at the Verizon numbers, which show a roughly even split between iPhone 5 and older models this quarter, we see that there is a large segment that strongly prefers a two year old iPhone to a current Android phone for roughly the same price. This indicates that the Apple ecosystem still commands a significant premium, but it is more for overall ease of use, instead of for new features, essentially saying that older hardware is already enough phone for most.
There is still a strong incentive for carriers to push phones using the 4G networks, as they are much more spectrum efficient, but after that the incentive for subsidies is gone unless a new model creates fresh bandwidth demands, and this will mean increasing pricing pressure on the iPhone.
There are three behaviors affecting the iPhone:
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people would keep their phones for longer, maybe replace the battery after a while, but still remain loyal to the iPhone.
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people will switch over to cheaper, good enough alternatives.
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people will decrease spending on the iPhone because they now own an iPad for mobile computing.
Because of the huge margin on the iPhone, Apple has quite some room to reduce prices and still maintain 30% gross margins. And their quality is still sufficiently better than the competition to maintain these margins, after all we are only talking about a few hundred dollars for people spending $1000 or more every two years for phone service.