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Why Apple Inc. Will Benefit From a Larger iPhone

By Chris Neiger – Mar 18, 2014 at 11:30AM

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Apple can ride the wave of larger screen sizes, and give current iPhone customers a reason to upgrade.

Ok Apple (AAPL 1.56%), you've held out long enough. But now it's time to introduce a larger iPhone. Sure consumers would like to see something new, but there's also huge upsides for the company's sales and for investors.

The iPhone 5s' screen size measures 4 inches, but Apple may be about to change that. Source: Apple.

Big is the new normal
The move to bigger smartphones is no longer just a passing trend, though the term "phablet" hopefully is. According to IHS, shipments of phones larger than 4.5 inches were expected to hit 431 million by the end of 2013, up from 99 million in 2012.

As reported by Barrons, Brian Marshall from ISI Group recently released an investor note saying there could be a "massive" upgrade cycle for current iPhone users when Apple releases two new rumored iPhone sizes, a 4.7-inch and a 5.5-inch. But he's not the only one projecting a larger iPhone. The Wall Street Journal has said that two bigger iPhones, with screens larger than 4.5 inches and bigger than 5 inches, will be released in the second half of the year.

Marshall thinks there's pent up demand from current iPhone owners for a larger phone, and Apple could reach peak upgrade rates of 12-14% during the second half of 2014. That could bring $3.00 earnings per share, or 10-15%, over the second half of the year, according to Marshall.

Same quality, new form factor
iPhone users are already a famously loyal bunch, but bigger screens would add something relatively new for consumers to get excited about. The smartphone market in the U.S. is reaching a saturation point, and the difference between high-end devices is difficult to decipher.

For many users, one of the deciding factors is simply screen size. For current iPhone loyalists, the larger screen would keep the high-end internals, stellar operating system, and ecosystem that consumers love, but add more real estate to the screen size as well.

Going big
Apple just changed its iPhone lineup last year when it introduced the new iPhone 5c. So introducing two new form factors this year seems like a big move from a company that typically makes small changes to its devices over several update cycles. But Apple is being outpaced by the competition when it comes to smartphone growth. In 2013, the smartphone market grew by 38%, while Apple's growth was just 13%.

Adding two bigger screen sizes would certainly drum up increased interest among current iPhone users and could even lure some Android users away. Either way it's a win for the company. Apple can tap into the larger screen size trend, keep current users happy, and hopefully increase its growth in a saturated market. 

Fool contributor Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. 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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