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Apple’s iPhone 5: Why the Company May Be In Trouble

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There's been a flurry of Apple news recently.

First, several reports say that Apple has had talks with Twitter about possibly investing "hundreds of millions" of dollars in the company at a $10+ billion valuation. Other reports say those talks are ancient history, but the idea is still interesting. Apple is weak in social, and an investment in Twitter would firmly align it with one of the two big social success stories. It would also probably alienate or disadvantage the other, Facebook.

Next, Apple and Samsung are now taking their patent dispute to court. This will likely eventually end with one company paying the other company a bunch of money to go away. The trial will probably determine which way the money goes.

Lastly, over the past few days, the latest round of purported pictures of Apple's forthcoming iPhone 5 have hit the web.

And I can't be the only potential customer who is deflated by what they see.

In fact, I'll go far enough to say that, if the iPhone 5 looks like the pictures that have recently appeared, Apple may be screwed.


Because the "iPhone 5" looks pretty much like the iPhone 4S. Which looked exactly like the iPhone 4, a phone that is now two years old.

In the meantime, Samsung and other manufacturers have come out with phones that make people's jaws drop, such as the Galaxy S3, which has a (relatively) humongous screen. Although the Apple faithful may start hyperventilating about things like the movement or elimination of a button, most phone buyers couldn't care less. Now that most phones do the same things and work pretty much the same way, the most obvious (and, arguably, important) difference between them is the screen.

In short, the Galaxy feels like a next-generation phone. The iPhone, meanwhile, looks small and old. And the pictures that purport to be of the iPhone 5 show a phone that is pretty much the same small, old phone.

(Yes, they've moved the camera an inch. And it's longer. And it has a metal back. Whoop-de-do.)

(And, yes, apparently the screen is a little taller. Somehow that isn't the same. Check out the size difference in the photo below between the current iPhone and the Galaxy: A bit taller won't cut it.)

To be sure, regardless of what the iPhone 5 ends up looking like, the Apple faithful will scarf up tens of millions of them. They'll line up around the block and sleep outside the stores. They'll rave about the amazing slickness and geniosity and sophistication of Apple, especially as compared to the plebeian "bigness" of Samsung (the Galaxy will no doubt be dismissed as the McMansion of phones).

But, secretly, a lot of those faithful will be disappointed.

And, more importantly, so will tens of millions of other customers and potential customers.

As they should be.

Because it will make it clear that one observation that many Apple skeptics make is dead-on correct--namely that each new generation of the iPhone offers less and less improvement over the prior generation, and, thus, gives customers less reason to upgrade. This, combined with carriers increasingly making moves to discourage customers from upgrading frequently (see AT&T's stealthy changes, which may have helped hurt Apple's iPhone sales in the June quarter), will stretch out the upgrade cycles. And that will mean fewer sales--and less growth--for Apple.

Apple's competitors, meanwhile, are on a tear.

In the past year, as Apple moved back its iPhone release schedule and then released a phone that seemed like only a modest refresh of the prior version, Apple's competitors have been gaining ground. Samsung sold 52 million smartphones in Q2, twice as many as Apple, and is now the clear worldwide smartphone leader. Samsung's Galaxy S3, which some reviewers say is better than the iPhone, has sold very well in its first couple of months on the market.

(Our gadget god, Steve Kovach, who is a huge Apple fan, is one of those who concluded that the Galaxy is better than the iPhone. He'd still buy an iPhone over the Galaxy, but only because of the "ecosystem"--the app store, the apps, etc. And although that ecosystem is obviously a big competitive advantage for Apple, it's safe to say if people feel forced to use an inferior phone just because of the "ecosystem," they're going to be disappointed.)

Despite the amazing success of the iPad (which will soon face serious, low-priced competition of its own), the iPhone is still by far and away Apple's most important product. The iPhone generates about half of Apple's revenue, and, likely, a lot more than half of Apple's profits.

If Apple's stock is to power its way to the the $1,000 that most analysts and investors now expect, the iPhone has to keep going gangbusters. And releasing a phone that looks pretty much like the same old iPhone--with a screen that now seems small--probably won't get the job done.

So here's hoping those pictures aren't actually of the iPhone 5.

SEE ALSO: Well, It Looks Like One Of Apple's Big Risks May Finally Be Hitting Home