Apple Can’t Afford to Be Caught Short on iPhone 6's This Fall

Why Apple has to get this one key launch element correct this fall.

Jul 31, 2014 at 11:00AM

Rumors of larger iPhones from Apple (NASDAQ:AAPL) have circulated for quite a while, particularly after Samsung (NASDAQOTH:SSNLF) struck proverbial gold with its 4.8-inch Galaxy S3 smartphone a little over two years ago. Since then, the non-Apple smartphone market has relentlessly pursued larger, higher resolution displays even as Apple itself stuck with a relatively small 4-inch display for its iPhone 5, 5c, and 5s.

However, though it's not official just yet, there's a lot of evidence that Apple will at least launch a 4.7-inch iPhone to succeed the immensely popular iPhone 5s. It's widely believed that this larger iPhone will usher in significant market share gains for Apple, particularly against archrival Samsung which commands a significant share of the smartphone profit pool.

Iphone

An alleged rear shell of the upcoming iPhone 6. Source: Apple.club.tw.

With plenty of pent-up demand for a larger-screen iPhone, likely from both current iPhone users and Android users looking to switch, Apple can't afford to screw up the supply issue.

Here's what happened last time
When Apple launched the iPhone 5c and 5s models in 2013, the company apparently banked on the 5c being the big seller. Apple highlighted the iPhone 5c first at its launch event last year, and -- from what I could tell in visiting Apple shops at the time -- was heavily promoting the device at its retail stores.

Iphone

Apple's iPhone 5c didn't sell as well as the company had expected. Source: Apple.

But Apple, as good at predicting (and driving) consumer electronics trends as it is, got it wrong.

Apple reported "supply constraints" for the iPhone 5s on its earnings call in January, citing these as a key driver behind the year-over-year decline in North American sales that quarter.

Why Apple can't let this happen again
Although Samsung has stumbled as of late, with low-end smartphone sales taking a beating from local Chinese vendors and high-end sales squeezed by Apple, LG (which reported strong growth from its LG G3 flagship), and even HTC, the iDevice maker can't afford to give its chief rival an inch.

If Apple is caught short on iPhone 6 supply this year, customers will seek alternatives -- particularly in North America as their contracts become due for renewal. While the Galaxy S5 hasn't performed as well as expected, Samsung is likely to launch its next-generation Galaxy Note 4 phablet at the IFA 2014 trade show set to kick off on Sept. 5 (as it has traditionally done). Furthermore, there are rumors of yet another Galaxy phone set to launch on August 4 -- dubbed the Galaxy Alpha -- that may be intended to face off directly against the iPhone 6.

Could supply be why Apple is allegedly staggering the iPhone launches?
Fresh rumors suggest Apple intends to launch its alleged larger iPhone 6 (the 5.5-inch variant) later than the 4.7-inch model so as to avoid competing with itself. This sounds a bit confusing at first (since as long as Apple is registering an iPhone sale, it's a win for the company and a loss for its competitors), but there's something important to keep in mind: supply chain management.

While Apple probably has a reasonable idea of how many 4.7-inch iPhones it can sell versus likely sales of 5.5-inch iPhones, it can't be sure, particularly as these are both sizes that the company has never offered in the past. If Apple makes the best guess it can as to the demand profiles of both sizes, but gets it wrong, then it'll have a glut of one model and a shortage of another -- adversely impacting sales.

Given that Apple likely wants to avoid this problem in the future, it will likely stagger the iPhone launches. After all, it'd be a real shame if Apple were to snatch defeat from the jaws of victory.

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.

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