Earlier this week there was speculation that Apple Inc. (NASDAQ:AAPL) would stop production of the iPhone 5 in addition to the iPhone 4 and 4S when the next model comes out. Analysts at Goldman Sachs issued a report to investors providing their insight on some of the big news from the week, including this rumor. They explained why they don’t think it’s likely.
Why the Apple rumor came about
The rumor was focused mainly on the iPhone 5S as being the next model of the device, rather than the iPhone 6 as some have believed. The report indicated that the iPhone 5S would be out this year and that it would essentially push the iPhone 5 out of production because of the technology that’s used in the touch screen. It uses in-cell technology, and ETNews indicated that the technology isn’t suitable to be produced in low volumes.
Of course there has already been skepticism surrounding this report. Some have pointed to alleged leaks of components for the iPhone 5S which indicate that the touch screen will be very similar to that used in the iPhone 5.
Why Goldman Sachs doesn’t believe it
Analysts Bill Shope, Elizabeth Borbolla, Cristina Colon and Justin Price at Goldman Sachs noted in their report this week that abandoning the iPhone 5 and all other previous iPhone models would be a major departure from Apple Inc. (NASDAQ:AAPL)’s current strategy of keeping the older models around and selling them as low cost handsets.
They also point to Apple Inc. (NASDAQ:AAPL)'s recent results which indicate continued strong demand for the older iPhone models even though the iPhone 5 still accounted for the lion’s share of the iPhone shipments during the June quarter. The analysts believe that strong sales of these older models were responsible for the upside surprise in terms of iPhone shipments for the quarter.
Apple might not have much to gain from abandoning older models
They said the popularity of the older handsets combined with the stronger margins on older handsets which have been moved along the commodity curve make it difficult for them to believe that Apple Inc. (NASDAQ:AAPL) would abandon all of those handsets—unless of course the next models have a much better margin structure starting out in compared to the older handsets.
Some speculate that the long-rumored low-cost iPhone could have margins that are significant enough to result in Apple Inc. (NASDAQ:AAPL) abandoning the older models, but of course we won’t know until the company makes the official announcement.