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Apple can still grow further with more iPhone models

Friday 1 February 2013 | 12:39 CET | Market Commentary

Apple's iPhone sales keep growing, quarter after quarter. However growth has been driven in part by continuous expansion to new markets. That expansion model is now reaching its end, while competition is intensifying on more mature markets. To keep its number-two market position after Samsung, Apple needs to increase the number of models it offers. Its strategy of gradually updating the iPhone will need to be stepped up a notch. 

Apple currently has three iPhone models in production: the iPhone 4 8GB, the 4S 16GB and the iPhone 5 in 16GB, 32GB and 64GB versions. The iPhone 4 is offered free with a postpaid plan, and the 4S starts at USD 99 in the US.

Model screen, resolution  processor  memory camera  announced  sales ended 
 iPhone  3.5", 480x320  Samsung  4/8/16GB  2.0  29-6-2007  11-7-2008
 iPhone 3G  3.5", 480x320  Samsung  8/16GB  2.0  9-6-2008  7-6-2010
 iPhone 3GS  3,5", 480x320  Samsung  8/16/32GB  3.0  8-6-2009  21-9-2012
 iPhone 4  3.5", 960x640  Apple A4  8GB  5.0  7-6-2010  n/a
 iPhone 4S  3.5", 960x640  Apple A5  16GB  8.0  4-10-2011  n/a
 iPhone 5  4.0", 1136x640  Apple A6  16/32/64GB  8.0  21-9-2012  n/a

Each time Apple launches a new model, an older version is taken out of production. The iPhone 5 chassis was unveiled in 2012, and based on the production cycle of previous years, this model will likely get an upgrade in the third quarter. 

This may be the iPhone 5S, with a faster processor (A6X) and likely LTE support in more frequency bands. While this may be lacking in wow-factor, it will certainly generate solid sales. The next step would see the iPhone 4 taken out of production and the 4S offered free.

A similar strategy of gradual updates is evident with the iPad. 

 Model screen, resolution  processor  memory  camera  announced  sales ended 
 iPad  9.7", 1024x768 Apple A4   16/32/64GB  geen  3-4-2010  3-2011
 iPad 2  9.7", 1024x768 Apple A5  16/32/64GB  720p  11-3-2011  3-2012*
iPad w. Retina  9.7", 2048x1536 Apple A5X  16/32/64GB  1080p  16-3-2012  2-11-2012
iPad 4 Lightning   9.7", 2048x1536 Apple A6X  16/32/64/128GB  1080p  2-11-2012  n/a
iPad Mini   7.9", 1024x768 Apple A5  16/32/64GB  1080p  2-11-2012  n/a

*iPad 2 with 16GB still available

Given the changes in the market, this gradual strategy looks in need of a rethink. Apple set the benchmark for the touchscreen smartphone, but other brands, led by Samsung, have entered the market. Developed markets are still growing, but the penetration has become so high that a replacement market has emerged.



Source: Apple. Note: Apple's fiscal year starts 01 October.


Part of Apple's spectacular growth is due to an expansion in its addressable market. The iPhone was first launched in a small number of countries, usually with just one operator having the exclusive. Even Apple's home market the US was only opened gradually, with a CDMA version only available with the iPhone 4 launch. 

This growth strategy is over. The iPhone 5 has been launched officially in around 100 countries, on multiple networks. The other around 100 countries in the world are developing countries, not considered suitable markets. Apple has even entered China, although the iPhone is very expensive there. 

Growth through an expanding footprint is no longer possible. To stimulate sales further, Apple needs to expand the number of models it offers. The iPod started as just one model, but over time was differentiated into multiple series, both at the high and low end of the market. 

At the same time as the iPhone 4, Apple developed multiple iPads and the iPad Mini, showing it has the capacity to develop several products at once. It's certain it is developing something new at this very moment. 

Cheaper model appears certain

Rumours of a cheaper iPhone model have already started to circulate, under the name iPhone mini. Apple is a secretive company, but the specifications of a new model have always leaked out in the past. Accessory makers always seem to have the right-sized products in the shops on time. 

The iPhone Mini will probably have a plastic body. The question is how low the price can go without Apple risking its own design philosophy and quality standards. 

The first iPhone models already had a plastic body. The 4/4S has two glass layers held together by a stainless steel ring. The iPhone 5's back casing is made of aluminium composite. 

Apple may do the same with the iPhone as it did with the iPad Mini: keep the same screen resolution, but in a smaller format. The iPad Mini has the same number of pixels as the first iPads, but in a higher density. 

Resolutions

Since 2010 developers have been adapting their apps for the higher resolution of 960x640 on the iPhone 4 (and iPod Touch 4th generation). Apple going back to a lower resolution of 480x320 thus seems unlikely. 

At the same time, the market trend is towards bigger screens and higher resolutions. Apple may also be working on a second new model, an iPhone 6. Apple has already developed new laminates from plastic and metal for MacBook Air, which could be used on a new chassis bigger than the iPhone 5. 

Apple has always defended its screen size, by pointing out that it still allows the right thumb to touch the left side of the screen. The trend in bigger screens (and more video consumption) can't be ignored though, even if Apple will never match Samsung's output of a device in every possible screen size. 



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