Next year, Apple (NASDAQ: AAPL) is expected to launch three new iPhones. One is believed to be an iPhone that shares many of the key traits of this year's premium iPhone X (TrueDepth camera system for Face ID and Animoji and a full-face display) with some quality reductions to allow it to profitably sell at a more modest price point than this year's iPhone X does.
The other two are expected to be higher-end (and higher-priced) devices. The smaller of the two is expected to retain the same size (and probably overall form factor) as this year's iPhone X, while the larger one is expected to effectively be a larger version of the successor to this year's iPhone X, with a 6.46-inch display.
Image source: Apple.
The latter phone has the potential to be, hands down, the most exciting product that Apple launches next year. Here's why.
How Apple's revenue can grow
One opportunity that Apple will have to grow iPhone revenue during the current product cycle and probably the next product cycle comes in the form of iPhone average selling price growth.
Remember, iPhone revenue is a function of both total number of units sold as well as the average selling price of the phones sold. Revenue growth can happen when one (or both) of those values increases.
One of the reasons that Apple's iPhone 6 cycle was so successful, for example, was that Apple enjoyed both significant unit shipment growth as it tapped pent-up demand for larger-screen iPhones, as well as average selling price increases as many customers bought the iPhone 6 Plus, which commanded a $100 premium to the standard iPhone 6 at the time.
Image source: Apple.
This year, Apple introduced the iPhone X at the $999 price point for the model with 64 GB of storage capacity. The version of that phone with 256 GB of storage costs $1,149.
Since Apple didn't previously sell iPhones at those price points (last year's iPhone 7-series topped out at $969), and since many iPhone customers are expected to choose the iPhone X over other iPhone models, Apple may see a large year-over-year boost in iPhone average selling prices, and therefore revenue, in the current fiscal year (which ends in September 2018).
Continuing the momentum in fiscal year 2019
I think the odds are good that the direct successor to this year's iPhone X will be sold at the same price point as this year's iPhone X. If that assumption is right, then the potential 6.46-inch iPhone would certainly start at somewhere north of $999, since Apple typically charges more for versions of its products with larger screens (larger screens are more expensive to produce than smaller ones, all else equal).
I think that such an iPhone would appeal to a large subset of the iPhone-buying population. For example, the customers who bought iPhone 8 Plus smartphones this year because they value the iPhone 8 Plus-specific software features not present on even the iPhone X (e.g. landscape mode at the home screen, in Mail, and so on) would probably buy up next year's 6.46-inch iPhone X.
For what it's worth, I consider myself such a customer.
There are also probably those customers who value the software features of Apple's iPhone Plus smartphones but ultimately compromised by going with the iPhone X for the superior design and OLED display. Those customers may be quite eager to jump on a 6.46-inch iPhone next year.
Additionally, there is a subset of the iPhone buying population that simply buys the best iPhones available. Those buyers, who would've purchased $999-$1,149 iPhone X smartphones this year would, with a pricier 6.46-inch iPhone available, pay Apple more to get that larger phone.
Finally, there are certainly individuals who may have found the iPhone X's features and design compelling but ultimately chose to buy a smartphone from another vendor simply because Apple didn't offer a version of the iPhone X this year with a super-large display. The introduction of the 6.46-inch iPhone next year will allow those customers to return to Apple's iPhone without compromising on screen size.
All this bodes well for Apple's ability to both grow its iPhone average selling prices as well as its ability to continue to capture unit share in the premium smartphone space. Considering how important the iPhone is to Apple's overall business, that's ultimately something that stands to boost Apple's revenue and profits substantially.
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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.