The Exchange

IPhone Fans, Investors Already Talking About Next Year’s Update

The Exchange
An employee shows the the front of a new Apple iPhone 5C and iPhone 5 S at a Verizon store in Orem, Utah
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An employee shows the the front of a new Apple iPhone 5C (R) and iPhone 5 S (L) at a Verizon store in Orem, Utah September 19, 2013. REUTERS/George Frey

The new iPhones have been on sale for less than a month but investors and Apple fans alike are already looking ahead to next year’s model.

That’s largely because Apple (AAPL) makes major changes in its top-selling phone only every other year. For 2013, the iPhone 5S stuck with the same screen and case design as the prior year’s iPhone 5. Next year, however, will likely bring a whole new iPhone.

So what can we expect from an iPhone 6? Here are a few speculative stabs at possible new features.

Experimenting with a larger screen

Apple did introduce two upgraded models in 2013, though the iPhone 5C was simply last year’s model dressed up in a pretty plastic coating. Apple said it sold 9 million iPhones in the first weekend of sales but has not released figures for the 5C alone. Several outlets this week reported that demand for the 5C was lower than expected and manufacturing orders had been trimmed.

As Apple continues to target the high end of the smartphone market with its top model, the greatest shortcoming of the current models is the relatively small screen size. The 5S and 5C both have screens that measure four inches diagonally with a ratio of 1,136 by 640 pixels.

Many of the most popular phones running Google's (GOOG) Android software that are aimed at the premium segment of the market have larger screens. For example, the HTC One has a 4.7-inch screen and Samsung’s (005930.KS) Galaxy S 4 has a five-inch screen. Both have a ratio of 1,920 by 1,080 pixels, the same as a high-definition television.

About half of all smartphones shipped in the second quarter had screens larger than four inches, up from just 20% a year earlier, Jeffries analyst Peter Misek notes. Apple has been experimenting with larger screen sizes and will most likely settle on a 4.8-inch screen for next year’s top model, Misek says.

Emphasis on style

Apple has also been hiring talent from the fashion industry, naming Angela Ahrendts, the CEO of Burberry, as senior vice president in charge of retail and online stores on October 16. In July, Apple hired Paul Deneve, who had run Yves Saint Laurent, to work on special projects.

That could help shape the next iPhone as a more fashionable accessory, says Paul Boldt, founder of ned, maude, todd & rod, a technology research firm based in Ottawa. “The Ahrendts hire is big news at Apple and may well influence the iPhone strategy,” Boldt says.

Apple introduced a gold colored iPhone this year, which has been a top seller. The new hires from fashion may well recommend new colors, cases and design changes.

Wireless charger

Some would also like to see Apple add wireless charging, allowing users to simply place the phone on a charging pad instead of plugging in a cable. There’s little chance Apple will add a Near Field Communications, or NFC, chip like those in some Android phones. Adding support for the new, faster type of Wi-fi known as ‘ac’ is much more likely.

An iPhone phablet?

Another option for Apple is to create a larger screen device that falls between the current iPhone and the iPad mini. Phones with six-inch screens, often called phablets, are popular in Asia, and Apple could introduce one in the first half of next year. That would give the company’s product lineup a big boost during a period that has become too quiet, with almost all new products now announced toward the end of the year.

“A six-inch iPhone phablet would be an instant best-seller and would immediately eclipse most other manufacturers sales,” says Ken Hyers, senior analyst at Strategy Analytics.

A second secondary model

Analysts think Apple will stick with a secondary, plastic model like the iPhone 5C next year despite the reduced orders. Some criticism of Apple over the 5C reflected a misunderstanding of the company's goals. The phone was priced exactly the same as last year’s mid-tier phone. Apple was not trying to expand into lower-priced markets with the 5C.

Rather, the goal was to avoid complications from sliding last year’s new model, the iPhone 5, into the mid-tier spot. That phone used the same expensive and somewhat more difficult to manufacture aluminum shell as the new iPhone 5S. Keeping the phone the same would have limited availability of the higher-profit 5S.

Hyping the slightly less expensive phone helps boost sales at the high end, says pricing consultant Rafi Mohammed. Premium brands facing cheaper competition often introduce a “fighter brand” to bolster their position, he says. “It gives customers a lower priced option and simply by having this option, it pushes sales to the premium,” Mohammed says.

The 5C is selling at about the same proportion of sales as last year’s mid-tier model, the 4S. About 27% of iPhone buyers have opted for the 5C vs. 23% who opted for the 4S when it was the mid-tier option last year, according to data from Consumer Intelligence Research Partners.

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