KGI Securities analyst Ming-Chi Kuo recently published a report claiming that Apple (NASDAQ:AAPL) is preparing three new iPhones next year. The first will have a 6.1-inch liquid crystal display and a TrueDepth camera system and will apparently be the cheapest of the new iPhones that will be introduced next year.
Apple is also reportedly planning a next-generation iPhone X with a 5.85-inch organic light-emitting diode (OLED) display as well as a bigger version with a 6.46-inch OLED display.
Since Apple is going to bring two of the signature features of this year's iPhone X to a lower-priced LCD iPhone (I think it will be branded simply as "iPhone"), investors may be wondering the following: How will it convince customers to pay more for the higher-priced iPhone X smartphones if the lower-cost LCD version includes the key selling points of the iPhone X?
Let's dive in.
Kuo's key comment
Kuo said that "the new TFT-LCD model will differ significantly from the OLED models in hardware and design specs," noting that the pixel density on the LCD iPhone's display will be much lower than that on either of the OLED models.
Using this as a baseline, I can think of several ways that Apple will be able to differentiate the OLED iPhones from the LCD models.
Firstly, I expect the LCD iPhone to use an aluminum frame, just as the current iPhone 8 and iPhone 8 Plus do while the new OLED models will feature stainless-steel frames. Stainless-steel frames are pricier and arguably look more premium than aluminum frames, so customers interested in having the sleekest-looking iPhones will gravitate toward the pricier OLED iPhone models.
Beyond that, there's the fact that the OLED iPhones should have better-looking displays overall. Not only will the displays on the new OLED iPhones be sharper than the one that'll be on the LCD iPhone, but the former will have better contrast ratios (this means better image quality) as well as support for high-dynamic range (HDR) content.
I also wouldn't be surprised to see Apple endow the new OLED iPhones with faster displays that can refresh their contents at a rate of 120 times per second (Apple brands such displays "ProMotion") for a smoother user experience. My bet is that the LCD iPhone will continue to use a display that can only update its contents at a rate of 60 times per second.
I wouldn't be surprised to see the phones differentiated in terms of system RAM as well (I could see the LCD iPhone packing 3GB of memory while the OLED ones could have up to 6GB) and even in terms of processing speed (Apple could run the chips inside the OLED iPhones at higher frequencies than it would the one inside the LCD iPhone).
There are plenty of ways that Apple can meaningfully differentiate the higher-priced iPhones from the lower-cost LCD model while still offering a compelling product with the LCD model. I think it understands that the average selling price growth story is key to continued iPhone success, so it won't build a lower-cost product that aggressively cannibalizes sales of its higher-end models.
Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.