The NASDAQ has been in rally mode much of this summer, and part of its momentum can be credited to Apple’s (NASDAQ:AAPL) highly-anticipated launch of its latest device, the iPhone 5. The company hasn’t set a release date yet, but analysts expect the announcement to come soon. It was around this time last year that Apple announced the iPhone 4S, and the timing would also coincide nicely with the holiday season.
There’s no doubt Apple’s newest smartphone will make big waves in the malls. Rumors of a sleek new design, increased data storage, and updated GPS capabilities have users excited. But what about the markets? There will be excitement there, too, but some recent trends tell me that the enthusiasm might be short-lived.
I’m talking about the number of people opting for prepaid smartphones, where you pay a lot more up front but you get a much lower monthly plan fee. With the more common post-paid plans, you get your phone at a deep discount, but your monthly plan fees are significantly higher. The newest and hottest smartphones are usually available to the postpaid customers before they make their way over to the prepaid plans.
So what are the trends? A recent report by the NPD Group found that prepaid wireless customers accounted for all the growth in the U.S. smartphone market in the second quarter this year. The group also found that sales of smartphones to post-paid wireless customers — the traditional monthly plan customers — were flat in the second quarter, compared to the prior year period, but sales of smartphones to prepaid customers jumped a whopping 91%. This is a pretty significant indicator that the U.S. smartphone market is maturing, and that ultimately leads to slower growth and smaller margins for companies like Apple.
Apple and Samsung dominate the U.S. smartphone market, with Apple owning 31% of the market and Samsung 24%. Samsung has already jumped into the prepaid game through a diverse selection of phones, but Apple only just entered in June, through its iPhone 4 and 4S. Some analysts are predicting that prepaid wireless plans will be the next big opportunity in smartphones going forward, as they appeal to lower-income customers who have the benefit of being billed monthly and receiving subsidized smartphones. And, with the income level of the average U.S. smartphone user dropping steadily, the case for a shift to prepaid phones seems clear.
But, not everyone is convinced, especially with the exciting launch of Apple’s iPhone 5 ahead, which could have millions racing to upgrade their phones on the traditional plans. And don’t forget about the potential launch of a Facebook (NASDAQ:FB) smartphone, which could attract a similar demographic.