Earlier this year things were not looking good for Apple's iPhone business.
Year-over-year growth was down to single digits. Samsung was the darling of the tech press. There were reports that Apple was slashing orders for the iPhone from its suppliers. Android continued to post astounding market share numbers.
Well, it looks like Apple is about to change everything and get its iPhone mojo back.
This week, it will announce the iPhone 5S, and iPhone 5C, a low-cost iPhone. Those products don't appear to have any revolutionary new features. (The 5S is said to have a fingerprint scanner that makes the phone more secure. We'll see what that's all about.)
Those phones are nice, but they're not what's going to reinvigorate the iPhone line.
Three things are about to happen which should put juice in the iPhone business:
1. Apple is going to start selling phones on DoCoMo, Japan's largest carrier, and China Mobile, China's largest carrier. China Mobile has 700 million users, making it seven times as large as Verizon, according to the WSJ. Apple hasn't added new carriers for a while, which has limited its opportunities for growth. Adding the biggest carrier in the world will lead to more sales.
2. Apple will sell a cheaper version of the iPhone. The iPhone goes for $800-$1,000 in other parts of the world. The iPhone 5C, Apple's low-cost phone, should retail for $400-$500, making it much more affordable and in line with mid-range smartphones. Apple's iPhone business has been slowed by pricing and distribution; that should change with new carriers and the iPhone 5C.
3. Apple is developing a bigger iPhone. The new carriers, and the lower prices will carry the iPhone for the next 12 months. Then, next year, we should see a bigger iPhone, which will breathe fresh life into the iPhone line. Every Android phone-maker offers a screen of 4.8-inches or bigger. Apple is the only company with a 4-inch or less phone as its primary phone. The bigger screens are nice, and Apple should at the very least give consumers the option of a bigger screen.
4. (BONUS) Apple is going to update the iPhone's software with iOS 7. iOS 7 looks different, but it's good. It also adds some nice features to compete with (and surpass) Android. The iPhone was starting to get a little stale, a little boring. The software was basically the same since day one. This redesign makes it feel fresh, new, and exciting. There will be some freak-outs, but overall we think people will like it.
Add it all up and the iPhone should see a nice rebound over the next 12-18 months.
Now, there are trade-offs. The average selling price of the iPhone is likely to drop as it sells a bunch of iPhone 5Cs. And its margins could compress if the iPhone 5C has a low margin.
But, these are the trade-offs Apple has to make. It's better to give up a little bit of margin, a little bit of the price, in order to get unit growth going again.
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