Apple Inc. (AAPL)’s iPhone 5: Is It About To Disappear?

In the fall quarter, Apple was able to make up for the lower-margin profile of the iPhone 5 and other products by boosting revenue. In contrast, the company is expected to post a significant year-over-year decline in profit this quarter. To restart earnings growth, Apple needs to halt or (preferably) reverse its gross-margin decline.

Most Apple followers don’t expect the iPhone 5S to boast any life-changing upgrades: It will be faster than previous models and may have a built-in fingerprint reader, but otherwise it’s likely to resemble the iPhone 5. If Apple were to drop the iPhone 5 price by $100, many customers would take the discount rather than buy a similar, if slightly more powerful, iPhone 5S. That would reduce the iPhone’s average selling price and pressure gross margin even more.

No need to keep the iPhone 5
By contrast, a lineup consisting of the iPhone 5S, 4S, and 4 would make more sense for Apple. There would be clear differentiation between the products. The iPhone 4 provides the base iPhone experience, the iPhone 4S is faster and adds Siri voice-recognition software, and the iPhone 5S would be even faster and include LTE support, a larger screen, and — potentially — a fingerprint reader.

The continuing popularity of the older models proves that there’s no need to upgrade the lower end of Apple’s iPhone lineup. In fact, Apple CEO Tim Cook noted that demand for the iPhone 4 outstripped supply in the fall quarter. This makes sense, insofar as customers who are willing to take an older model to save money are by nature more concerned with price than with having the most powerful device.

Foolish conclusion
There’s a good chance that Apple will simply replace the iPhone 5 with the 5S at the top of its smartphone lineup this summer, rather than dropping the iPhone 5’s price and keeping it in production. This move would be positive for Apple’s gross margin and would probably help Apple return to solid profit growth beginning this summer.

The article Is the iPhone 5 About to Disappear? originally appeared on Fool.com.

Fool contributor Adam Levine-Weinberg owns shares of Apple and BlackBerry and also has long January 2014 $13 calls on BlackBerry. The Motley Fool recommends and owns shares of Apple and Google.

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