The 'Sapphire' in the Rough
After analyzing the ever-churning rumor mill that is now moving 'full speed ahead' right about three-weeks from the expected "iPhone event", I am ready to make some predictions about what we are going to see and perhaps more importantly, when we are going to see it. Most of this has been published on the plethora of rumor sites that seem to get new shipments of components snuck out of Foxconn on a daily basis, so none of this is original content; it's merely a compilation.
Event Date & Venue:
I fully expect the 'iPhone event' to be on Tuesday, September 9th, and I expect AAPL to use the Yerba Buena Center for the Arts ("YBCA") as the venue. Checking YBCA's calendar of upcoming events, they do not show anything scheduled for September 9th. AAPL has utilized a number of different venues for key product launches over the past four-years, with YBCA being the most popular (utilized for roughly 50% of major product launches):
- iPad 1 (Jan-2010): YBCA
- iPhone 4 (June-2010): WWDC - Moscone Center
- MacBook Air "Modern" (Oct-2010): AAPL Campus (Cupertino, CA)
- iPad 2 (Mar-2011): YBCA
- iPhone 4S (Oct-2011): AAPL Campus (Cupertino, CA)
- iPad 3 (Mar-2012): YBCA
- iPhone 5 (Sept-2012): YBCA
- iPad 4 / iPad Mini 1 (Oct-2012): California Theatre (San Jose, CA)
- iPhone 5S (Sept-2013): AAPL Campus (Cupertino, CA)
- iPad Air / iPad Mini Retina (Oct-2013): YBCA
- iPhone 6......?
YBCA seems like the logical venue for the 6 launch given that every 'major' product revamp has taken place outside of the AAPL campus. Every iterative change to the iPhone product (4S / 5S) has taken place on the AAPL campus. Note the 3GS was unveiled at the Moscone Center in June-2009, however, this was when AAPL was still using WWDC as the 'stage' for iPhone launches.
Models & Availability:
I expect AAPL to unveil two new models of the iPhone as they did last year with the 5S and 5C. I expect the two models to come in different screen sizes 4.7" (iPhone 6) and 5.5" (iPhone Air).
For all intents-and-purposes, I believe the 4.7" iPhone 6 will be the primary iPhone that will be launched, which will be intended to capture the majority of the market. Thus, I believe the majority of production capacity and shipments will be captured with this version:
- Screen Size: 4.7" (Diagonal)
- Screen Resolution: ? (too many theories out there)
- SoC: 2.0 GHz A8 (20 nm) w/ custom GPU based on IMG Series 6XT
- Co-Processor: Upgraded M8
- Battery Size: 1810 mAh (iP 5s has 1560 mAh)
- Sapphire Screen? No
- Camera: 13MP Exmor IMX220 1/2.3" (No OIS)
- Modem: QCom MDM9x35 (Cat 6 LTE)
- WiFi: BRCM's BCM4354 5G SoC w/ 802.11ac support and 2x2 MIMO (finally...)
- NFC: Yes (finally...)
- TouchID: No major changes - improvements for accuracy / durability
- Other: Beats' headphones authentication and lightning support
- Configurations: 16GB / 32GB / 64GB
- Colors: Silver / Gold / Space Grey
- Price: Subsidized (On-Contract): $199 / $299 / $399; (Off-Contract): $649 / $749 / $849
- Availability: Pre-orders: 9/12; In-Store: 9/19
- Launch Crowds: Yes
The iPhone 6 will sport an aluminum (alu-min-ium) chassis, akin to its predecessors, but will take on many of the new iPad design traits, including rounded edges w/ rear tapering, thinner & longer side buttons - all while maintaining the now legendary chamfered front bezel. I don't expect the phone's "footprint" to be significantly larger than the iPhone 5S, with AAPL shrinking the bezels and making the home button a bit smaller. This will enable the one-handed use that AAPL has long-claimed as one of the largest benefits of maintaining a smaller screen size. I also don't expect it to be much thinner than the current 5S (in order to increase battery size), although the rear tapering may do a number on the eyes with the illusion of it being thinner (the "iMac effect")
This is where it gets a bit interesting. In contrast to last year where AAPL brought a lower-priced new 'companion' model to pair with its flagship, I believe AAPL will do the opposite this year and bring a higher-priced premium partner along. This model will definitely be introduced alongside its counterpart as that would be more-than-logical. However, I believe there will be a staggered launch for this model due to a number of reasons mainly related to:
- Low production yields (sapphire); and,
- Market segmentation (this model will be targeted at a specific demographic).
So the big question is...what will make this model so 'premium'? There are a number of areas where I think this phone will separate itself from the 'mainstream 6':
- Screen Size: 5.5" (Diagonal)
- Screen Material: Sapphire
- Battery: ~2900 mAh
- Camera: Inclusion of Optical Image Stabilization (OIS)
- Configuration: 16GB / 32GB / 64GB / 128GB
- Price: Subsidized (On-Contract): $299 / $399 / $499 / $599; (Off-Contract): $749 / $849 / $949 / $1,049
- Chassis: ~6 mm (approx. 20% thinner than 5S / 6)
- Availability: mid-October
- Backlog: Through FQ1 (will exit holiday qtr with supply below demand level)
I believe AAPL's guidance for FQ4 (provided during its July FQ3 earnings' call) was rather muted - it definitely indicated that a new product refresh was coming, but I don't believe it built-in the amount of hype that has been hovering over what will be the "mother of all upgrade cycles". Why? I think it's a bit unclear as to how many would-be iP6 buyers are going to say, "nah, I'd rather wait for the 5.5-inch Air". I personally think the 6 will be "good enough" for the majority of would-be buyers. The 4.7" screen is a nice jump from the current 4" screen and the other spec bumps will be more-than-enough. Additionally, it will remain in the price-range of all previous iPhone product refreshes.
However, there will be a segment of the population, including many international buyers (Asia-based) that want that 5.5" sapphire screen - and that's really what I think this comes down to: the "5.5-inch sapphire" - it is a feature that no other mass-produced smartphone on the planet will have, and it is going to leave the rest of the industry scrambling (sound familiar?). This sapphire issue is really the x-factor here and the $100 price bump at each configuration level will lock-in the necessary margins to make sapphire-use feasible.
I think this type of 'staggered' launch will definitely add volatility to the market - if the 6 launch is muted due to high demand for the Air, watch out. It will not be a reasonable comparison, but analysts and the market will definitely be looking at first weekend sales numbers and will be comparing them to the 9M number for the 5S / 5C launch - one that I personally believe was 'artificially-amplified' by a push of 5C units into the channel (AAPL exited FQ4 2013 with the largest increase in iPhone channel inventory in the product's history: +3.3M units, most of which were 5C units sitting on shelves). Additionally, if AAPL cannot ramp up yields on the Air to sufficiently satisfy the majority of demand in FQ1 (which will be reflected in guidance), watch out.
The New iPhone Product Lineup:
Entering the holiday season, I expect AAPL to have a completely revamped iPhone product lineup encompassing three screen sizes, and will include the following models (with their respective entry price-points):
- iPhone Air (5.5"): $299 Subsidized / $749 Off-Contract
- iPhone 6 (4.7"): $199 Subsidized / $649 Off-Contract
- iPhone 5S (4.0"): $99 Subsidized / $549 Off-Contract
- iPhone 5C (4.0"): Free Subsidized / $449 Off-Contract
Note that I expect AAPL to continue to sell the 8GB 4S at 350 USD (off-contract) in select markets (mainly running 2G / 3G networks) where AAPL has seen significant gains and price-elasticity with older, lower-priced models (e.g., India, China, Vietnam, etc.). However, I do not expect that 4S to be available in mature markets such as the U.S., Japan, and countries throughout Western Europe.
The Balance of the Year:
While much of the "AAPL buzz" has been focused on the iPhone refresh, I fully expect another massive press event to round out AAPL's year, which I believe will likely occur toward the end of October (3rd week), and will introduce the world to:
- iWatch (AAPL's long-rumored entry into the 'wearables' and health-monitoring space)
- New iPads (TouchID, glare-resistant screen, A8, ____?)
- 12" MacBook Air Retina (50/50 on this - dependent on Broadwell; could be introduced, but won't ship until late-November or early-December)
- Just to throw it out there and this will not justify stage time, but can we please get an update to the Mac Mini?
Massive Hype, Massive Revenue, and.....an AAPL Christmas