Apple's Next iPhone Could Drive Significant Growth
If you've been following the Apple (NASDAQ: AAPL) iPhone rumor mill, you probably know that Apple is preparing to launch three new iPhones this year. One of the new iPhones is expected to be an upgraded version of the current premium iPhone X and another is expected to be a larger version of the updated iPhone X, which I'll refer to as the iPhone X Plus.
The third model, which I'll refer to simply as the new iPhone, is expected to be similar in form factor to the upcoming iPhone X and iPhone X Plus, but with the following differences:
While the next iPhone X is expected to sport a 5.8-inch display and the iPhone X Plus is rumored to come with a 6.5-inch display, the new iPhone is said to come with a display that measures 6.1 inches.
While both the new iPhone X and the iPhone X Plus will use more advanced organic light emitting diode (OLED) displays, the new iPhone is expected to use a cheaper, less advanced liquid crystal display (LCD) to keep costs down.
The new iPhone isn't expected to incorporate Apple's 3D Touch feature, while the higher-end models will.
On top of these differences, TF Securities analyst Ming-Chi Kuo, in a recent note, said that the new iPhone will come in a number of casing colors including gray, white, blue, red, and orange. The higher-end iPhone X and iPhone X Plus, on the other hand, are expected to come in black, white, and gold.
Image source: Apple.
And, finally, Kuo says that the new iPhone will sell for "under $700." For some context, the current iPhone 8 starts at $699 and the iPhone 8 Plus starts at $799.
Based on everything we know, it's starting to look like the new iPhone will be Apple's attempt at driving up iPhone unit shipment growth after several years of stagnation. Here's why.
A form factor change for the masses
Last year, Apple launched three new iPhones: iPhone 8, iPhone 8 Plus, and iPhone X. The iPhone X represented an all-new form factor, while the iPhone 8 and iPhone 8 Plus were essentially updated versions of the iPhone 7 and iPhone 7 Plus. The iPhone 7 and iPhone 7 Plus were updated versions of the iPhone 6s and iPhone 6s Plus, which themselves were updated versions of the iPhone 6 and iPhone 6 Plus.
In short, it's been a while since Apple introduced an all-new form factor device at typical iPhone price points.
Kuo thinks that this revamped form factor and purported price point will do a better job of driving current iPhone owners to upgrade to new models than the iPhone 8 and iPhone 8 Plus did.
I completely agree.
Potential impact to Apple's iPhone business
If Kuo is right that the new iPhone will boost upgrade activity among current iPhone buyers, then we could see Apple deliver the first significant year-over-year growth in iPhone shipments since the iPhone 6 and iPhone 6 Plus in the fall of calendar year 2014.
Indeed, iPhone shipments dropped 8% year over year during fiscal year 2016 (iPhone 6s/6s Plus product cycle) and inched up just 2% during fiscal year 2017. Apple has seen iPhone unit shipments grow modestly during the first half of fiscal year 2018 compared to the shipment numbers seen in the first half of fiscal year 2017, but Apple is still quite a bit off from its peak iPhone unit shipments.
Moreover, while there is some concern that the new iPhone could be, by far, the most popular of the three new iPhones that Apple introduces (a recent report from The Wall Street Journal says that more than half of the new iPhones that Apple is planning to build this year will be of the cheapest model), which could pressure iPhone average selling prices. There are a few factors to consider:
If total iPhone unit shipments grow significantly year over year, then the greater unit shipments could more than offset a modest decline in iPhone average selling prices and drive revenue growth.
The new iPhone is likely to be significantly more compelling than the iPhone 8 and iPhone 8 Plus, even after those two devices are, presumably, discounted. The iPhone 8 and iPhone 8 Plus, on the other hand, were very similar to their discounted predecessors. This means that during the coming iPhone product cycle, fewer iPhone buyers will opt for the older, discounted models and more will go for the lowest cost of the flagship models, which could actually help the iPhone average selling price story.
When all is said and done, though, it looks like Apple is preparing a really strong lineup of devices and the entry level model looks like it could be a big hit.
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Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.
