In recent weeks, rumors and viewpoints are flying high regarding Apple’s iPhone 5 plan. Many view the delay of iPhone 5 a setback for Apple for the reason that the delay will give Android phones more time to grab market shares. There are also a lot of speculations about why Apple will push iPhone 5 from early summer release—as it always does for iPhone—to later in the year. Japan earthquake’s impact on supply chain is one reason, or others argue that Apple is making major design changes to iPhone 5.

I would view the delayed release of new iPhone a good sign for Apple. Right off the bat, Apple did introduce a new iPhone model in 2011—the CDMA version of the iPhone 4. CDMA iPhones alone could drive iPhone volume growth on par with last year’s 84%. Secondly, older versions of iPhones still show strong market reception. Despite a strong iPhone 4 launch in June 2010, Parks Associates estimates that iPhone 4 volume accounted for 42% of total iPhone sales that year. In other words, 3G S model, due to lowered prices at major carrier partners, had a strong 2010 and accounted for 58% of iPhone volume. By the same token, even iPhone 5 is absent from market in 2011, iPhone 4 alone can hold up demand pretty well as long as Apple continues to add new carrier partners and lowers price at opportunistic time (e.g. 4Q11).

Without compromising sales growth, Apple needs to address a more critical issue in its business—build its scale. As Apple leads the smartphone market in its 5th year, it definitely has built a strong brand and accumulated a large follower group. Each annual refresh of the iPhone is usually followed by feverish upgrade activities from these iPhone cohorts. The problem is, although Apple benefits from brand visibility and increased sales, upgrades don’t benefit Apple from a market share perspective—i.e. market shares measured by installed base, not annual shipments. While iPhone volume keeps climbing, Apple’s other businesses, particularly media purchase and advertising, depend more on the expansion of iOS installed base for scale. In every quarter’s conference call, Apple executives emphasized cumulative iOS devices in activation. This cumulative number is Apple’s leverage on content owners and advertisers—the higher, the better for Apple. Therefore, if delaying iPhone 5 can help Apple increase installed base by making existing models more affordable and more readily available to more consumers, Apple will take this chance.
 

More to come on why iPhone 5 delay is not a bad thing for Apple.