Apple, Inc. Is About to Do Something Brilliant

Apple is working on a product that could give it a big advantage over Samsung and Google.

Jan 24, 2014 at 10:00AM

Apple (NASDAQ:AAPL) is working on not just one but two new iPhones, both with larger screens, according to The Wall Street Journal. Other publications, notably Bloomberg and Digitimes, have made similar claims in recent months.

Although I've been a longtime critic of Apple, there's nothing negative that can be said about larger iPhones. Assuming these reports prove true, bigger iPhones should be a boon to Apple shareholders, allowing Apple to cash in on a market that's been dominated by Google (NASDAQ:GOOGL) and Samsung (NASDAQOTH:SSNLF).

Apple could take a larger share of the market
Apple's share of the U.S. smartphone market was a bit more than 40% last quarter, according to the most recent data from Kantar Worldpanel. Worldwide, it's even less -- nearly 13%. Google's Android operating system is more popular, accounting for about half of smartphone sales in the U.S. and more than 80% across the globe.

Much of the demand for Android smartphones comes from the low end, with phones like Samsung's $100 Galaxy Rush appealing to pre-paid subscribers. But not all phones running Google's Android are cheap -- Samsung's flagship Galaxy S4 costs just as much Apple's iPhone 5s, while its Galaxy Note III is even more expensive.

There are a number of reasons why consumers might choose these high-end Android phones over Apple's handsets: Google's Android operating system is more customizable and provides far more integration with Google's services. But the most significant selling point could be their larger screens -- the Galaxy S4 has a screen size of about 5 inches, while Galaxy Note III sports a 5.7-inch screen; both phones absolutely dwarf Apple's 4-inch iPhone 5s.

Anecdotally, I've met a number of people who either have, or considered, switching over to an Android-powered phone based on nothing more than the screen size. Firsthand accounts of such Android converts consistently mention the larger screen as a key advantage.

But that advantage vanishes once Apple joins its competitors in offering larger handsets. Buyers of Samsung's expensive handsets could be enticed to switch to Apple, knowing that they won't have to sacrifice their larger screen in the process. Given the popularity of Samsung's flagships -- the company shipped 40 million Galaxy S4s in the first six months and 10 million Galaxy Note IIIs in the first two months -- Apple has a large opportunity.

Apple's gross margin should increase
At the same time, the iPhone's average selling price should be expected to increase. An unlocked version of Samsung's Galaxy Note III retails for roughly $900 at Best Buy, making it 20% more expensive than an iPhone 5s with the same amount of internal storage.

Apple could charge a similar premium for its larger iPhone -- in the process, leading to a higher average selling price. Unfortunately for Apple shareholders, the iPhone's average selling price has been falling in recent quarters as buyers have snapped up less expensive, older models. Apple's overall gross margin has declined in tandem.

A bigger, more expensive iPhone could help reverse this troubling trend, boosting both the iPhone's average selling price and Apple's overall gross margin.

Apple's most important product
Apple CEO Tim Cook has said the company plans to release several new products this year. If one of them is a phablet -- and it seems that will be the case, given the growing number of reports indicating as much -- it will emerge as Apple's most important product.

An iOS-powered phablet and a flagship iPhone with a larger screen could grow Apple's share of the smartphone market at the expense of larger competing devices powered by Android. At the same time, if Apple adopts a pricing policy similar to Samsung's, it should raise Apple's gross margin as well as the iPhone's average selling price.

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Sam Mattera owns shares of Best Buy. The Motley Fool recommends and owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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