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How Is Apple Still Selling So Many Aging iPhones?

Thursday - 4/25/2013, 4:00am  ET

Over the past two quarters following the release of the iPhone 5, Apple has been caught off guard by surprisingly strong demand for the iPhone 4. The company doesn't disclose specific product mix data, but management has acknowledged that the iPhone 4 has been in high demand.

Last quarter, Tim Cook acknowledged that the iPhone 4 was among numerous products facing supply constraints, saying the "iPhone 4 was actually in constraint for the entire quarter and sales remained strong." The other products that were having a tough time keeping up with demand were new devices like the iPad Mini and iMac, whereas the iPhone 4 was initially released in 2010. The iPhone 4's production chain is mature at this point, so the only reason it would be short is if Apple was truly caught off guard.

This quarter, the iPhone 4 is seeing "significant interest" in China, as Apple has implemented several initiatives to make it more affordable and appealing to first-time smartphone buyers. CFO Peter Oppenheimer attributed the decline in iPhone average selling prices to "an increase in the iPhone 4 mix."

Investors also know that half of the 4 million iPhones that Verizon just activated were older iPhone 4 and iPhone 4S models, the same 50/50 split as the 6.2 million iPhones activated the quarter before. That's over 5 million older iPhones sold on Big Red's network over the past two quarters, demonstrating pent-up iPhone demand at the $0 and $100 subsidized price points.

In the fast-paced smartphone market, three years is an eternity. How is Apple still selling so many three-year-old iPhones?

On paper, the iPhone 4 has inferior technical specifications to nearly all the newer devices available for competing platforms at the same price point. Strong iPhone 4 sales speak to the strength of Apple's platform and ecosystem.

Apple is the only smartphone OEM that can effectively shift focus away from pure specs (although not entirely) -- a war that other commoditized vendors are forever destined to wage. Instead, Apple conveys a value proposition that includes a differentiated software platform, strong complementary content offerings, and higher levels of customer service and satisfaction.

For all of these reasons, a respectable number of consumers ignore the larger displays, faster processors, and speedier data connections of newer devices and are going with an aging iPhone. No other smartphone maker could sell such an old device this well.

Apple's unique ability to sell old devices is a major competitive advantage. Still, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

This article was originally published as How Is Apple Still Selling So Many Aging iPhones?on Fool.com

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