Two years ago this month, Apple CEO Tim Cook (then COO) told Bernstein analyst Toni Sacconaghi that Apple was doing "clever things" to attack the prepaid market. He said he wants Apple to be "for everyone," not "just for the rich." He also said "price is big factor in the prepaid market" but Apple is not "ceding any market," noting how China is "a classic prepaid market."
The analyst notes align well with recent rumors about Apple's cheaper iPhone in development. In January, a slew of reports from supply chain sources and even major U.S. news sites like the Wall Street Journal and Bloomberg took notice of a new iPhone in development strategically targeted toward lower-income, emerging markets like China and India.
Why Apple Should Release The Low-Cost iPhone In 2013
Apple’s Q1 2013 earnings, despite breaking all previous quarterly earnings records held by the company, was still not enough to assuage the concerns of investors and analysts, and its ever-diminishing stock is a reflection of that. To reverse its poor stock fortunes, Apple needs to prove that it can still expand. Releasing a cheap, low-cost iPhone 6 in 2013 might be the key.
“One of our sources claims that Apple’s iPhone prices remain too high for most mainland Chinese customers -- the iPhone 5 hardware alone starts at $849 there, versus the iPhone 4 at $500, in a country where the average annual salary is around $3,000 per person,” iLounge editor-in-chief Jeremy Horwitz wrote in a January report. “The source has said that mainland Chinese iPhone 5 sales are already tapering off as a result of the pricing, which is higher than in Hong Kong. A budget iPhone model would help sales in populous but underdeveloped countries to grow.”
Thanks to newer, smaller, cheaper and more power-efficient chipsets, Apple can afford to build an entry-level to mid-range smartphone on top of the current iPhone -- either bigger like the Samsung Galaxy S3 or a smaller iPhone Nano -- to appeal to markets that can’t quite afford Apple’s most popular product, including many in China. Furthermore, if Apple’s iPhone 6 was not only cheaper but also smaller too, the phone would greatly appeal to the Asian markets where small devices are not only chic, but better to hold in their (smaller) hands.
Apple definitely wants to make inroads in China. The company is reportedly trying to strike a deal with China Mobile, the largest telecommunications carrier in the world with 703 million active subscribers, to build a TD-LTE version of the iPhone to work on the carrier’s high-speed networks. On Jan. 10, Apple CEO Tim Cook stopped by China Mobile headquarters to meet and discuss “matters of cooperation” with Xi Guohua, the company’s chairman.
DigiTimes isn’t alone in believing Apple’s working on a newly sized, low-cost iPhone. On Jan. 2, Topeka Markets analyst Brian White said Apple will likely release its next iPhone in more colors and screen sizes, implying Apple might sell an iPhone smaller or larger than the current iPhone 5 or even previous-generation iPhone 4S or 4 units.
"Although Apple offers a 4-inch screen on the iPhone 5 and a 3.5-inch screen on the iPhone 4S and iPhone 4, the company has never offered multiple screen sizes for a single model," White said. "We believe this is about to change with the next iPhone offering different screen dies that we believe will allow Apple to better bifurcate the market and expand its reach."
Considering Apple’s urgency to strike a deal, in addition to the mounting number of rumors pointing to a 2013 release date, it’s very likely that we could see both the iPhone 5S and iPhone 6 launch later this year.
iPhone 6: What Might It Look Like?
Jeremy Horwitz, the editor-in-chief at iLounge, released a report in January detailing what he called the "budget iPhone 5," which will allegedly look like the iPhone 5 but feature several new design elements and tweaks.
“Yes, it will be made substantially from plastic,” Horwitz wrote, echoing an earlier report from DigiTimes that said the iPhone 5S or 6 would feature a hybrid chassis made of both plastic and metal. “No, it won’t just be a Retina- and Lightning-equipped refresh of the iPhone 3G or 3GS, Apple’s last plastic iPhones, nor will it look just like an all-plastic version of the iPhone 5. This new model is actually a cross between the iPhone 5, fifth-generation iPod touch and -- wait for it -- the iPod classic. Yes, really. It will have a 4” screen, like the iPhone 5, a bottom like the latest iPod touch and a shape that’s most similar to the iPod classic.”
The original DigiTimes report about the low-cost iPhone 6 said the new iPhone’s internal parts could “be seen from the outside through a special design." If this rumor is accurate, the finished design for the iPhone 6 might look like an iPhone 5 mixed with the plastic enclosure of the iPhone 3GS from 2009 mixed with the final design for the Bondi blue iMac in 1998, which was characterized by its brightly colored, translucent plastic casing, letting users see the inside of their desktop computer for the first time.
Horwitz believes the low-cost iPhone 6 will feature nearly identical specs to the iPhone 5 but "a half-millimeter taller and a half-millimeter wider," as well as a full millimeter thicker. While these changes are minimal, Horwitz noted the biggest design change in the iPhone 6 will be the curves.
“Apple’s budget housing looks closest to the iPod classic in shape, though not in materials,” Horwitz said. “Unlike the plastic iPhone 3G/3GS, which featured soft curves on all sides, the budget iPhone’s curves start and end at flat surfaces, so each side and the back are flat. This seems like a trivial change, until you realize that it allows Apple to use flat rather than curve-matched parts: the right side has a flat, centered SIM card tray just like the iPhone 5’s, while all of the buttons and ports are on flat rather than curved surfaces. A flat-backed iPhone won’t rock on a flat surface when it vibrates, either.”
The proportions of the iPhone 6, according to Horwtiz, resemble the latest generation iPod Touch, with its identical proportions and locations for the camera, microphone and rear flash. The headphone jack, Lightning dock, bottom microphone and speaker are in the same location as the iPhone 5, but the new iPhone 6 is said to have an extra microphone on the bottom, as well as four individual holes for the speaker grill, rather than the 26 speaker holes at the bottom of the iPhone 5.
“In summary, the budget iPhone will look a lot like an iPhone 5 from the front, an iPod classic from the side and an iPod touch 5G on the bottom -- only made from plastic rather than glass or metal,” Horwitz concluded. “It won’t make any bold departures from past Apple designs, but then, it’s supposed to be an inexpensive iPhone and achieves that goal pretty much as expected.”
Besides the form factor, Horwitz believes the next iPhone will feature a processor bump -- possibly an Apple-built A7 chip -- as well as improvements to the camera and flash, integrating a new aperture and 13-megapixel lens.
However, most rumors about the iPhone 6 have revolved around the screen, as Apple is reportedly investing a great deal of time, energy and capital on the display for its next-gen iPhone 5S and iPhone 6.
A Jan. 3 report released by the China Times said Apple might switch to a "Touch On Display" panel currently in development at one the company's supply chains, Taiwan-based Innolux Corp., which has reportedly been licensed to use Sharp's proprietary IGZO display technology.
Whether or not Apple specifically chooses Innolux to make screens for the next iPhone, however, Apple will most likely feature Sharp's ultra-thin IGZO display technology in its next iPhone, either the iPhone 5S, iPhone 6, or both.
In late December, DigiTimes and Apple analyst Horace Dediu both mentioned Apple’s alleged investment in the ultra-thin IGZO displays produced by Sharp, predicting the inclusion of the technology in Apple’s next batch of iOS devices, including iPhones and iPads. Dediu also pointed to Apple’s recent $2.3 billion investment in “product tooling, manufacturing process equipment and infrastructure,” believing the cash was used to help bail out Sharp, which had been in financial straits in 2012. Sharp is reportedly going “all in” on IGZO technology, so it’s possible Apple saved Sharp to leverage its investment in the next generation of displays.
IGZO display technology is not only thin and tough, but it can even handle higher screen densities than Apple’s Retina display, which is visually stunning on its own. IGZO displays can reportedly handle display densities north of 330 ppi; for a quick comparison, the new iPad 4 can only achieve 264 ppi.
One of the advantages of IGZO display technology is its lower power consumption. Most Apple products, from the iPhone 5 to the iPad 4, require cartoonishly big batteries to achieve just eight hours of power -- this is because current-gen Retina displays are extremely power hungry. If Apple wanted its iPhone 6 to not only last longer during the day but also charge faster when plugged in, IGZO seems to be the way to go for the next generation of iOS devices.
Giving credence to these rumors, Taiwan-based AU Optronics. or AUO, reportedly plans to develop a Retina display for the next-generation iPad Mini, which may require IGZO technology to make such a Retina display feasible.
Apple is facing stiffening competition from its rivals at Google, Samsung and even Microsoft, so the company will need to pull out all the stops for its iPhone 5 successor, as well as this low-cost iPhone 6, in order to keep customer interest in an increasingly crowded marketplace.
Apple sold 47.8 million iPhones and 22.9 million iPads in Q1 2013.
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