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Why Apple Inc. Will Benefit From a Larger iPhone

Ok Apple (NASDAQ: AAPL  ) , you've held out long enough. But now it's time to introduce a larger iPhone. Sure consumers would like to see something new, but there's also huge upsides for the company's sales and for investors.

The iPhone 5s' screen size measures 4 inches, but Apple may be about to change that. Source: Apple.

Big is the new normal
The move to bigger smartphones is no longer just a passing trend, though the term "phablet" hopefully is. According to IHS, shipments of phones larger than 4.5 inches were expected to hit 431 million by the end of 2013, up from 99 million in 2012.

As reported by Barrons, Brian Marshall from ISI Group recently released an investor note saying there could be a "massive" upgrade cycle for current iPhone users when Apple releases two new rumored iPhone sizes, a 4.7-inch and a 5.5-inch. But he's not the only one projecting a larger iPhone. The Wall Street Journal has said that two bigger iPhones, with screens larger than 4.5 inches and bigger than 5 inches, will be released in the second half of the year.

Marshall thinks there's pent up demand from current iPhone owners for a larger phone, and Apple could reach peak upgrade rates of 12-14% during the second half of 2014. That could bring $3.00 earnings per share, or 10-15%, over the second half of the year, according to Marshall.

Same quality, new form factor
iPhone users are already a famously loyal bunch, but bigger screens would add something relatively new for consumers to get excited about. The smartphone market in the U.S. is reaching a saturation point, and the difference between high-end devices is difficult to decipher.

For many users, one of the deciding factors is simply screen size. For current iPhone loyalists, the larger screen would keep the high-end internals, stellar operating system, and ecosystem that consumers love, but add more real estate to the screen size as well.

Going big
Apple just changed its iPhone lineup last year when it introduced the new iPhone 5c. So introducing two new form factors this year seems like a big move from a company that typically makes small changes to its devices over several update cycles. But Apple is being outpaced by the competition when it comes to smartphone growth. In 2013, the smartphone market grew by 38%, while Apple's growth was just 13%.

Adding two bigger screen sizes would certainly drum up increased interest among current iPhone users and could even lure some Android users away. Either way it's a win for the company. Apple can tap into the larger screen size trend, keep current users happy, and hopefully increase its growth in a saturated market. 

Who the real winner of the smartphone war is
Want to get in on the smartphone phenomenon? Truth be told, one company sits at the crossroads of smartphone technology as we know it. It's not your typical household name, either. In fact, you've probably never even heard of it! But it stands to reap massive profits NO MATTER WHO ultimately wins the smartphone war. To find out what it is, click here to access the "One Stock You Must Buy Before the iPhone-Android War Escalates Any Further..."

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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 March 18, 2014, at 12:27 PM, jdmeck wrote:

    I still don't agree. And again I ask the question. Who is it really, who wants a larger phone? A Samsung type of customer, or the more sophisticated Apple customer?

  • Report this Comment On March 18, 2014, at 2:06 PM, v35pilot wrote:

    I am an Apple iPhone user who is currently tied to the platform due to the amount I have invested in both the apps and the familiarity.

    Anecdotally, count me as a customer who has been waiting almost two years to upgrade to a new iPhone, with the hopes that the screen would be bigger than the current iPhone 5. Newly acquired old man reading eyes can be considered the main driver here.

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Chris Neiger

Chris has covered Tech and Telecom companies for The Motley Fool since 2012. Follow him on Twitter for the latest tech stock coverage.

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