Apple Can’t Afford to Wait Until September

With handset competition intensifying, Apple can't afford to wait until September to roll out its next generation iPhone stack.

Feb 19, 2014 at 12:00PM

We are just on the verge of the launch of Samsung's (NASDAQOTH:SSNLF) next generation Galaxy S5 flagship phone. The rumors are running rampant and it's hard to get a good read on exactly what this smartphone will feature or what it even looks like, but it's pretty clear that it will be a state-of-the-art design from a hardware perspective. On the software front, Samsung is still well behind Apple, but could dramatically improve its "TouchWiz" interface for the S5. At any rate, the key takeaway is that Apple (NASDAQ:AAPL) can't afford to wait until September to counter.

The big iPhone – sooner is better than later
It's clear that a fairly large portion of the smartphone market (no pun intended) is moving toward these larger smartphone form factors. While many users prefer the svelte 4-inch iPhone, Apple certainly has the capability to expand its iPhone product stack. Given the company's willingness to release something like the iPhone 5c to address lower price points, it stands to reason that larger phones (perhaps a 4.7-inch and a 5.5-inch as rumored) would form a pretty compelling product stack.

That being said, Apple probably needs to move quickly if it is to truly capitalize on this opportunity. Samsung's next generation Galaxy S5 is the poster child for popular, large phones, but the competition from the likes of Motorola/Lenovo, HTC, LG, and others is intensifying. Now, the obvious reason that Apple may not be so excited to pursue such phones is that it would likely take a gross margin hit, but the company really has no choice if it wants to maintain/expand share in the premium segment of the market.

Gross margin hit?
While Apple's CEO has a strong background in supply chain management, and while the company is likely to be able to squeeze the component vendors for lower prices (after all, it's Apple), there are some harsh realities from a component cost perspective that Apple is going to have to deal with, including:

  • Increased cost of a 20-nanometer applications processor (which is rumored to be built exclusively by TSMC as Samsung hits yield problems with its 20-nanometer process)
  • Larger/higher resolution display (this will hike up the display cost)
  • More RAM, particularly given how reluctant the DRAM industry is to increase capacity (to keep ASPs/margins nice and fat)

The offset, however, is that while Apple would probably take a gross margin hit on the "smaller" of the new iPhones (i.e. the 4.5-inch-4.7-inch one) since it would need to come in at roughly the same price point as the current one. However, the incremental cost adder to go from a 4.7-inch design to – say – a 5.5-inch design is likely less than the additional $100 or so that Apple would be able to charge for the base 16GB model (given the Galaxy Note 3's $299 baseline price on-contract). This could help offset a potential margin hit on the hypothetical 4.7-inch model, depending on, of course, the unit volumes Apple is able to push.

At any rate, Apple can't afford to wait
The innovation engine across the industry at large is already moving extremely quickly (even if the rest of the market is bludgeoning its margins in order to compete in this increasingly crowded market), so Apple is unlikely to be able to wait until September before it has to pretty aggressively cut prices on the iPhone 5s in order to maintain its market share at the high end.

Apple is going to need to "wow" consumers with a next generation iPhone in order to fend off the Android hordes from eating into its outsized portion of the smartphone industry's profits. There's no question that Apple can do it – it's proven itself time and again as the designer of the world's best smartphones – but the question is whether Apple would rather milk the current design for all its worth or move quickly to a next generation design more quickly.

As always, time will tell.

Phones are Apple's bread and butter, but this could be their breakout product!
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.


Ashraf Eassa has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers