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Google Inc (GOOG), Apple Inc. (AAPL): What About Cheap Androids?

It’s no surprise that the latest Kantar Wordpanel report shows U.S. consumers are switching from feature phones to smartphones. But what is surprising is that over the past three months, first-time smartphone buyers have opted for Apple Inc. (NASDAQ:AAPL)‘s  three-year-old iPhone 4 so much so that Android has lost a significant amount of first-time buyer market share.

Apple Inc. (NASDAQ:AAPL)

What about cheap Androids?
Although Google Inc (NASDAQ:GOOG)‘s Android OS still accounts for 51.1% of smartphone sales in the U.S., that number has decreased 7.6% from a year ago. Kantar said in the report that, “Between July 2011 and July 2012, 52% of customers that bought an Android device previously owned a feature phone. Over this past year, that number has declined to 46%.”

That’s partly due to Apple Inc. (NASDAQ:AAPL), which has seen its share of first-time smartphone buyers increase from 9% back in July 2012 to 15% this July. This has made the iPhone 4 the top model for first-time U.S. smartphone customers.

So where does this put Apple Inc. (NASDAQ:AAPL)’s iOS compared to Android?

Despite the iPhone 4 grabbing more first-time smartphone buyers, Apple Inc. (NASDAQ:AAPL) still holds 43% of the new-buyer market, which has remained steady for the past two years. So while more first-time buyers are opting for the iPhone 4 than they did previously, it hasn’t changed Apple’s overall share of new smartphone buyers.

But that doesn’t mean there isn’t a real benefit for Apple Inc. (NASDAQ:AAPL), especially with more iPhone options likely on the way.

The more, the merrier
Next week, Apple is expected to release a new iPhone, and possibly a cheaper iPhone model as well. If a cheaper version emerges, then Apple may be in an even better position to woo first-time smartphone buyers than it has been with the iPhone 4.

It could do this in two ways: by lowering the price of the iPhone 4 even lower, or scrapping the 4 altogether and making the 4S the lowest-priced iPhone. I think it’s more likely the Cupertino company will stop selling the 4, lower the price of the 4S and add a new cheaper iPhone somewhere between the price of the iPhone 5 and the 4S. In the past, Apple Inc. (NASDAQ:AAPL) has typically stopped selling the oldest model once a new one launches.

This would not only make the lowest-priced iPhone a better bargain than it currently is — the 4S has more features than the 4 — but it would also increase the number of iPhone choices first-time smartphone buyers have. Kantar said in its report that iOS has been better at capturing new buyers than Android “with their lower priced, widely available, older iPhone models.” A new, cheaper iPhone model would only solidify that advantage by adding more options into the mix. Investors would be wise to take note of Apple’s iPhone unveiling(s) next week, as well as the pricing structure. About 40% of U.S. mobile users are still using feature phones, which means there’s still plenty of users who will eventually be looking for a better alternative. Right now, Apple needs to continue tapping into this market with its existing lineup and hopefully bring in an additional product to further its advantage.

The article Apple’s Secret Sales Weapon: The iPhone 4 originally appeared on and is written by Chris Neiger.

Fool contributor Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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