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iPhone Model Lineup Changes in Store

Currently, Apple produces four technically-distinct iPhone models:

  • The iPhone 4S, GSM/CDMA
  • The iPhone 4, GSM
  • The iPhone 4, CDMA
  • The iPhone 3GS, GSM

... plus a new model in the pipeline, which we all call the iPhone 5.

Although there are component cost differences between the four current models, their costs are very comparable.  The parts and manufacturing costs of an iPhone 4 is virtually identical to that of the iPhone 4S.  The parts and manufacturing cost of an iPhone 3GS is within $35 of the iPhone 4S - and converging.  The delivery and support costs of an iPhone 3GS is virtually identical to that of an iPhone 4S.

To reduce its overall costs, Apple needs to reduce its overlapping product lines.  To stay competitive, it is clear that Apple will start to drop off it's older products in order to maximize economies of scale.

Therefore, I suspect that the iPhone product line will soon be substantially overhauled:

New:

  • iPhone 5, $200 and up price range


Retained:

  • iPhone 4S, $0.99 - $99 price range, based on storage.


Dropped:

  • The iPhone 4, GSM
  • The iPhone 4, CDMA
  • The iPhone 3GS, GSM
This will effectively result in the number of iPhone products supplied by Apple from four to two, simplifying the supply chain and reducing support costs.  Furthermore, it will result in a more capable baseline for the iPhone ecosystem - a dual core CPU with 512MB of RAM will be the new baseline for future operating systems - a tremendous step up from the 2009-vintage devices.

Furthermore, this change will have only positive impact to the customer community.  The new line-up will be priced nearly identically to the old lineup.  There will be less choice, but only in the sense that less capable models will be dropped.   Customers will be getting a 4S for the price of a 3GS.

Timing:

Apple won't release the iPhone 5 without a new OS to support its new features and to wow the industry.  Therefore, the new iPhone will be released along with iOS6.  iOS has a quite visible schedule - mid-to-late September.

Validation:

To validate this concept, we should start to see an erosion of the availability of the iPhone3GS and perhaps even iPhone4 models roughly two to four weeks before the release of the new iPhone.  However, Apple will not constrain its market so much that it negatively impacts sales, and therefore the reduction of supply will happen only after the back-to-school shopping season.

Conclusion:

Barring unexpected production mishaps, by September there will be evidence of a drop-off of iPhone 3GS and iPhone 4 availability.  Apple will release the new iPhone by mid-to-late September, in concert with iOS6.  Soon after, Apple will formally remove the 3GS and 4 from its catalog.  

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