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What Features Will the New iPhone Have? Who Cares?

With Apple's (NASDAQ: AAPL  ) new iPhone expected out Sept. 10, the Internet is abuzz with rumors and hopes for the new smartphone. Among those rumors -- as noted by our own tech chief -- are a cheaper "5C" model, a gold case, and even a fingerprint sensor. But lost in the shuffle may be a more prescient question for investors: Who really cares?

Certainly, there will be the usual legions of Apple fanboys lining up for the new phones, but every new iPhone upgrade seems to bring diminished returns. Like an asymptote, the phones seem to be approaching peak utility, a point at which Apple can make changes and additions to the iPhone, but the usefulness of the iPhone will only be marginally improved, if at all.

The changes in the smartphone market over the last few years already seem to confirm this phenomenon, as does Apple's rumored decision to introduce a cheaper iPhone. The average selling price for iPhones dropped sequentially last quarter for the second time in a row, falling from $613 to $580, a significant drop in just three months. Apple's overall gross margin also hit its lowest point in five years, at 36.9% as iPad prices have also come down. Last quarter was the fifth in a row that the company has seen declining gross margins.

A major reason for the decline in the iPhone selling price has been the sustaining popularity of the iPhone 4. In fact, sales of the older model in Apple's most recent period accelerated as the company lowered the price of the phone in some emerging markets. Apple also guided for gross margin to remain in that low range of 36%-37%.

The negative sentiment following the iPhone 5's debut and reports of flagging consumer demand, after all, are what caused Apple shares to fall off a cliff over the past year. Notably, consumers are also opting for iPhones with less storage, as the average amount of storage purchased fell from 30 GB on the iPhone 4S last October to just 20 GB on the iPhone 5 the following quarter. A survey by Consumer Intelligence Research Partners found that older models had accounted for half of all iPhone sales since the iPhone 5's launch, but during the 4S' product cycle, older iPhones made up just a third of sales.

A short history of iPhones
Viewed individually, the models following the original iPhone are not nearly as spectacular as the phone itself, which introduced consumers to both the touchscreen interface and the app ecosystem, which has been so successful that are now nearly 1 million apps available for iOS and Android. Of course, speed, camera functionality, and processing ability have improved steadily along the way, as smartphone data networks have gone from novel to an everyday need, but the stand-alone additions to each phone are rather minor in comparison. The most significant of those seem to have been FaceTime, made possible through the front-facing camera available on the iPhone 4, which Apple has been touting in its latest ad campaign; Siri, the intelligent personal assistant that arrived with the 4S; and the larger screen on the iPhone 5, which allowed for an additional row of apps, getting the iPhone's screen size closer to Samsung's Galaxy line.

Where's the magic?
With the introduction of the iPhone 5S, Apple will enter its seventh generation of smartphones. Consumers are hoping to see a bit of magic come out of Cupertino once again, but raising the bar becomes more difficult when the company set it so high to begin with and has already had to lift it so many times since. Some of Apple's recent announcements, including the redesign in iOS7, which includes pastel-colored, flat-looking icons, do nothing to improve performance, and simply seem to be change for the sake of change.

Technology will always improve, but major innovations come in stages. TVs advanced from black-and-white to color, and then from tubes to flat-screens, and while each innovation spurred a wave of purchases, there was little need to do so in between. Once an innovation has been fully adopted, the need to continue upgrading is essentially eliminated. The smartphone market is a bit different, as telecom companies subsidize upgrades, but the need to have the newest, hottest phone on the market is gradually declining. After all, a product life span of just a year or two would be considered extremely short in any other industry. Even desktop computers, another tech product with built-in obsolescence, have three- to five-year lifespans.

Apple will remain an admired company, and its products are sure to be coveted, but for investors that will not be enough. A new iPhone every year will not be sufficient to move the needle. With its already massive sales and profits, and a market value to go along with it, Apple will need to find yet another disruptive innovation -- whether it be in smart watches, TVs, or another area that's escaped the media's attention -- if its share price is going to move up significantly.  Without that, it will become this decade's Microsoft, a hugely profitable tech giant with a stock price plodding along with the market.  

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Read/Post Comments (14) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 29, 2013, at 7:37 PM, prginww wrote:

    What would happen if Apple continued to make alot of money and just kept doing buybacks. Would that move the needle. That is the answer for a big company. Keep making great stuff and use that money to buy shares back.

    This is what Carl Icahn is hoping for. Jason Schwarz of said that if Apple keeps doing buybacks the stock could have earnings of $ 501 EPS in 10 years.

    As long as Apple keeps fighting and sells lots of phones and other products, cash should be used to reduce the share count.

  • Report this Comment On August 29, 2013, at 8:05 PM, prginww wrote:

    "Certainly, there will be the usual legions of Apple fanboys lining...."

    Whoa. Expect no objectivity from this bile-pot.

    Pointless reading further

  • Report this Comment On August 29, 2013, at 8:09 PM, prginww wrote:

    It the Motley Fool paid to try and sink Apple stocks? 9 times out of 10 you post negative articles about them.

  • Report this Comment On August 29, 2013, at 8:11 PM, prginww wrote:

    Honestly, who care's what the Motley Fool thinks. Long time ago made Yahoo my homepage, just to quick check on the days headlines, and I'm sorry, but I could care less about some Investors point of view

  • Report this Comment On August 29, 2013, at 8:15 PM, prginww wrote:

    WOW - The author has discovered a new paradigm that the rest of us are completely unaware of, which is that consumers are not interested evolutionary improvements. They will only come out to buy consumer goods with disruptive innovations. They are not interested in boring annual improvements, which is why they stopped buying new PCs in the early 1990s, and why they stopped buying new model autos in the 1960s. ....LOL

    Also Apple are doomed because consumers prefer to buy more affordable iPhone 4s and 4Ss, rather than their competitor's latest smartphone models....LOL

    Also he has this amazing insight that consumers will not be interested in the new affordable iPhone 5C, which will definitely not widen Apple's market share whatever independent research by Morgan Stanley's Katy Huberty and other analysts might so foolishly suggest...LOL

    Also the author is possessed of secret information that consumers will not care for the easy to use ultra-high security of the new Apple bio-metric chip, but will be happy to have all their private information, including account details and passwords, stolen by criminal gangs from their Androids with over 100,000 malware,.

    Also the author has this reliable insight that consumers won't by interested in iWatches, nor in larger screen iPhones, nor Apple TVs, nor iOS in the Car, to name just a few products in the Apple pipeline.

    Oh what bliss to be possessed of such amazing foresight....LOL

  • Report this Comment On August 29, 2013, at 8:28 PM, prginww wrote:

    Where other folks see opportunity presented as retention rate (folks upgrading), you seem to see a problem? Where folks see uncaptured opportunity in a huge emerging market via a cheaper product, you see a problem. Where others see a 36% margin as a problem, I see a company that has 75% of the entire mobile market profit. I see a company with a nearly 100% market share in the $1000 and above laptop and PC market. You see what?

    I think you need glasses. Fanbois may have rose colored glasses, but these facts are far from fanbois facts. If all these other outfits competing with Apple are doing so well, how is it that Apple is making profits and they aren't?

    I think retaining customers, doing a trade-in program, lowering entries barriers in China and India.... all good ideas. I like a beefy dividend that will grow. I love a buyback.. the largest and fastest in history. I like having the largest market cap company with a strong presence in my portfolio.

    Frankly, you're the puzzle, bud. Not Apple.

  • Report this Comment On August 29, 2013, at 9:01 PM, prginww wrote:

    Secular Investor Lol

  • Report this Comment On August 29, 2013, at 9:46 PM, prginww wrote:

    He has a point. Plenty of people will buy, but there is no real anticipation for the device.

    Buybacks only help sellers of the stock. Want to support investors? increase the dividend. Plus they dilute it so fast with stock options it really has a watered down effect. For example, they bought back something like 36 million shares last quarter, but the overall share count only dropped by 18 million year over year so essentially they are using shareholder equity to pay themselves more money and support the stock price so they can immediately sell when their options vest.

    But we'll see what the future holds it just doesnt look very exciting. Good time to sell covered calls.

  • Report this Comment On August 29, 2013, at 10:22 PM, prginww wrote:

    @ tkell31 "He has a point. Plenty of people will buy, but there is no real anticipation for the device."

    Says who?

    You and the author ....LOL

    What reality distortion field have you been hiding in?

    There are countless articles and blogs about the iPhone 5S and 5C

    Google iPhone 5C and you will find just a few results - 38,808,000 to be precise ....LOL

    Google iPhone 5S and you will find only 204,000,000 results ... LOL

    I suppose over 240 million results counts as "no real anticipation" ....LOL

  • Report this Comment On August 29, 2013, at 11:12 PM, prginww wrote:

    The writer must have just noticed the Iphone numbers recently. Iphone always has a huge wave of buyers waiting for a fall new model to replace older phones, and a drop off in sales starting in January. It is a historic cycle, going back to 2007 when it was first introduced and forever changed the cell phone business.

    Apple has the highest customer satisfaction rate in the industry. They don't please everybody, but all other phones are regarded as "entry level" phones, and the move up is to Iphone.

    It makes sense that older model phones are the biggest competitor to the newest Iphone, the original design was many years ahead of any other device.

  • Report this Comment On August 29, 2013, at 11:54 PM, prginww wrote:


    "He has a point. Plenty of people will buy, but there is no real anticipation for the device."

    Umm. You do realize that Apple hasn't even announced officially that they'll be unveiling phones on Sept 10th right? No invites sent out, thus only the AAPL investing community that follows the stock closely would know of the sept 10th rumor. When the announcements go out, you can definitely expect to see "anticipation for the device." And you can expect 70% of original 4S owners eligible for upgrade to have their wallets open. Not to mention the 20% of total new sales that they'll take off android users and then just "fanboys" and new buyers. Yeah. No one will want it. You're right. Just because the Samsung S4 flopped, don't expect apple to. They've yet to undersell total units of one release in comparison to their previous release. I expect that trend to continue. The sell side money was made. Just as the run up to $700 (too quickly) was made. Wake up. Own AAPL here.

  • Report this Comment On August 30, 2013, at 5:13 AM, prginww wrote:

    For the USA iPhone consumer there is not much of a barrier to upgrading even if you aren't laying awake at night dreaming of your new iphone upgrade. This is simple math. If you are buying a subsidy iPhone and can sell your existing iPhone and upgrade for little or no cost. Most people will enjoy the extra processing power and other hardware enhancements, however evolutionary and mundane they may be. The finger print sensor may turn out to be significant so let's wait before declaring a small upgrade.

  • Report this Comment On August 30, 2013, at 12:04 PM, prginww wrote:

    Latest updates provided in this WWDC Transcript @

  • Report this Comment On September 05, 2013, at 3:34 PM, prginww wrote:

    Thanks for using "asymptote," a word my Mac had to look up. That alone made your piece worth reading.

    Beyond that, most of the points made weren't insightful or necessarily valid. For you to state it was "the usual legions of Apple fanboys lining up for the new phones" demonstrates a naive bias.

    Most of the original (and subsequent) iPhone buyers were new to the device, which introduced newcomers to Apple's simplicity of use due to the company's ethos of simultaneous software and hardware development and its rare and consistent aesthetic values. That, in turn, broadened the market for Apple's other products. Such has been the case since the iMac and iPod were introduced to the Microsoft and Rio (remember them?) acolytes.

    True, any new invention, if desired by a substantial market, would be much more exciting than an updated iPhone and new iOS operating system; but that's hardly news. That's quotidian thinking. Feel free to look THAT up. And thanks again for "asymptote," though iOS 7 will be more exciting and useful to me.

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