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Apple Inc.'s 2019 iPhone Problem

By Ashraf Eassa - Updated Dec 6, 2017 at 2:46PM

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After two big years, Apple may find it challenging to grow iPhone unit shipments during the 2019 product cycle.

Apple's (AAPL 0.20%) fiscal 2018 -- that's the year that began on Oct. 1, 2017 -- is poised to be a big one for the company. Thanks to the introduction of the iPhone X, which represents the first radical redesign of Apple's all-important iPhone product since the introduction of the iPhone 6-series in the second half of calendar-year 2014, Apple is expected to see a surge in iPhone unit shipments as well as robust iPhone average selling price growth.

Those two factors are expected to contribute to significant revenue growth for the year. 

Apple's next iPhone product cycle stands to be even bigger as the company introduces an iPhone X-like device at a more accessible price point as well as a larger version of the iPhone X to appeal to smartphone buyers' increasing preferences for bigger-screen devices. 

Apple's iPhones in a mosaic pattern.

Image source: Apple.

However, while Apple's current iPhone cycle and the one that'll follow look exceptionally promising for the company, the one after that could be a little tricky for the company. 

Let's examine the potential problem Apple could face and how the company can effectively deal with it. 

It's about the form factor

With this year's iPhone X, Apple finally introduced an all-new iPhone form factor after years of trotting out variants of the same basic iPhone 6 and 6 Plus form factor. Since customers seem to be quite sensitive to form factor and aesthetics, it's not hard to see why people are really enthusiastic about the iPhone X. 

Next year, while Apple isn't likely to introduce an all-new form factor, it's going to bring that form factor to far more customers, which should have a similar effect in terms of sales and customer excitement to trotting out a new form factor. 

The back (left) and front (right) of the new iPhone X.

Image source: Apple.

The 2019 iPhones, however, face the issue of potentially not seeing any significant form factor change. 

To be clear, Apple will almost certainly introduce amazing feature and technology upgrades with its 2019 iPhones, but such feature upgrades in the iPhone 6s- and 7-series smartphones didn't stop both of those phones from failing to drive higher iPhone sales than what the company achieved with the iPhone 6-series phones. 

The solution, then, is clear: Apple must introduce some sort of noticeable form factor change with the 2019 iPhones if it wants to keep sales at least flat. 

Apple's options

Apple has a few good options available to it with respect to form factor updates for the 2019 iPhones. 

First, Apple could introduce screens with curved edges, similar to what Samsung (NASDAQOTH: SSNLF) uses in its Galaxy S8 and Note8 series of devices. In fact, Apple was rumored to be planning to introduce such curved edges with this year's iPhone X, but -- at least according to TrendForce, which I believe to be a reliable source -- the feature was cut because of "issues with the 3D glass in terms of production yield and drop tests." 

In addition, according to a Bloomberg report back in April, Apple "tested a more ambitious prototype" of the iPhone X that had the "same slightly curved front and steel frame" as the iPhone X that shipped, but with a crucial difference: It had a "glass back with more dramatic curves on the top and bottom like the original iPhone design from 2007." 

The combination of a curved display with potentially larger display sizes and curves on the top and bottom of the device could make for compelling form factor updates in the 2019 iPhones. These potential aesthetic changes, coupled with the key feature upgrades that Apple will surely bring to the table, could allow Apple to continue to drive iPhone unit shipment and possibly average selling price growth beyond the next two product cycles. 

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.

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