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Apple, Inc. Might Finally Abandon 16 GB iPhones

By Evan Niu, CFA - May 31, 2016 at 4:21PM

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The Mac maker may finally address a long-standing customer pain point.

iPhone 6s shoots 4K video. Image source: Apple.

While I happen to be a fan of Apple's (AAPL -1.93%) 16 GB iPhones, not everyone feels the same way.

Let's be clear: As a consumer, the practice infuriates me, since 16 GB truly isn't a sufficient amount of storage for a modern mobile device. However, as a shareholder, I greatly appreciate the strategic effects of the practice since Apple has enjoyed a strong increase in iPhone average selling prices over the past couple of years due in part to how it prices storage upgrades.

Well, Apple might finally cave to the broader consumer pressure and abandon 16 GB iPhones.

Moving on up

IHS Technology analyst Kevin Wang recently posted on social media that the market researcher's supply chain indications show that the next iPhone is expected to include 2 GB of RAM and start with 32 GB of storage.

The current iPhone 6s already includes 2 GB of RAM, but there have been rumors that Apple would boost the 5.5-inch iPhone 7 Plus to 3 GB of RAM to improve performance and multitasking. It's worth noting that archrival Samsung already includes 3 GB of RAM on numerous Galaxy devices.

Keeping a similar strategy?

Ideally from an investing perspective, Apple maintains some storage pricing structure that still incentivizes upsells to pricier models.

For instance, newer iPad models start at 32 GB of storage while offering a comparable upgrade to higher storage capacities. In the iPad, customers can quadruple storage to 128 GB for $150. In contrast, the base 16 GB iPhone storage can be quadrupled to 64 GB for $100.

So long as the upgrade has a reasonably compelling value proposition (such as quadrupling storage), then Apple should still be able to generate meaningful upgrade activity.

It was good while it lasted

Apple has tried its best to defend the 16 GB model over the past couple of years, pointing to the prominence of cloud services and cloud storage that theoretically reduce the need for local storage. That argument can only go so far, though, particularly when you consider the presence of a camera capable of capturing 4K video. There's not really an alternative to capturing such high-resolution files. Additionally, iOS is a robust 3D gaming platform these days, and those games are also pretty hefty in terms of storage requirements.

The company has also implemented things like "app-thinning," which allows developers to reduce app sizes by only downloading the specific assets needed for different devices as opposed to downloading the full universal app that's supported across all devices. There's no reason to download app resources that are never used on a given device, and app-thinning was clearly introduced to improve storage efficiency.

But in the end, simply increasing the base storage to 32 GB is a simpler route that will address a long-standing customer pain point, even if Apple gives up some ASP in exchange.

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