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This Could Be Apple Inc.'s Most Interesting Product in 2018

By Ashraf Eassa - Updated Dec 29, 2017 at 4:06PM

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Apple's next-generation mainstream iPhone could be a huge hit.

Next year, Apple (AAPL -2.98%) is expected to release three new smartphones. The first is expected to be an upgraded version of this year's iPhone X, with the second being a larger-screen version of the first.

The third model, which will likely be the lowest-priced of the new devices, is expected to have a 6.1-inch liquid crystal display (LCD) -- a cheaper and less advanced display technology compared to the organic light-emitting diodes that the iPhone X uses -- and use less expensive casing materials than its siblings.

Three iPhone 7 devices, each screen showing a different portion of Apple's App Store

Image source: Apple.

While much of the focus in the press and among Apple enthusiasts will almost certainly be on the next iPhone X and its larger sibling, I think that the 6.1-inch LCD model could have a huge impact on the performance of Apple's iPhone business in the coming product cycle.

An iPhone X for the masses

This year's iPhone X is an expensive device: The baseline model with 64 GB of storage begins at $999, with the 256 GB variant selling for $1149.

Those price points are simply inaccessible to many smartphone buyers, and possibly even to many iPhone buyers.

In countries with hefty import duties and/or weakening currencies relative to the U.S. dollar, the iPhone X is even less accessible.

The rumored 6.1-inch LCD iPhone is likely to offer many of the key selling points of the iPhone X -- all-screen display, 3D-sensing front-facing camera, and possibly many of the internal upgrades that the next iPhone X models will get -- at a more accessible price point.

KGI Securities analyst Ming-Chi Kuo thinks that such devices will come in between $649 and $749 -- or, in other words, at pre-iPhone X pricing.

I think this device has the potential to help both the average iPhone selling price and Apple's unit-shipment story.

Helping both unit and average selling prices

In terms of unit-shipment growth, I think the effect will be straightforward: Apple will have a much more compelling product available next year at traditional iPhone price points than it did this year with the iPhone 8 and 8 Plus.

Consumers seem to respond well to form-factor changes, especially those that eliminate bezel in favor of additional screen real estate. Additionally, the 3D-sensing feature in the iPhone X seems to be a hit with consumers, with one report claiming that the TrueDepth camera is a "major driver among positive ratings."

Apple's iPhones arranged in a mosaic pattern

Image source: Apple.

So, bringing that same goodness to a more accessible price point should help accelerate iPhone refresh among the current installed base. It could even help Apple gain additional market segment share.

As for average selling price: At first it might seem that the 6.1-inch LCD iPhone would hurt average selling prices rather than help them. Indeed, if Apple brings the features of the iPhone X to a lower price point, shouldn't that hurt iPhone X sales and actually decrease iPhone average selling prices?

Not so fast!

I think the people buying the iPhone X this year are, by and large, smartphone shoppers who want the best and are willing to pay for it. As long as Apple sufficiently differentiates next year's iPhone X models from the 6.1-inch LCD model, I'd expect minimal share shift from the more expensive X-series iPhones to the regular one.

Where the 6.1-inch LCD iPhone can boost average selling prices is among smartphone buyers who would've picked up an iPhone 8 or iPhone 8 Plus this year, but thought the differences were too small to justify the price premium compared to the now-discounted iPhone 7 and iPhone 7 Plus.

The 6.1-inch LCD iPhone should be a clear winner compared to this year's iPhone 8 and iPhone 8 Plus in form factor and aesthetics; adding in the 3D-sensing front-facing camera, I think the device will easily be worth the premium to those who can afford it.

In short: A larger percentage of the iPhones Apple sells in the coming product cycle are likely to be from its latest generation of devices than in this product cycle.

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