In an earlier piece, I argued that Apple's (NASDAQ:AAPL) iPhone 6 Plus represented a fundamental game-changer for the company. Not only does it do the obvious of servicing the market for an even larger iPhone, but the higher selling price and larger physical volume of the device should allow Apple the freedom to, in future generations, include larger, more powerful systems-on-chip than what the smaller standard iPhones can support.
In the comments section of the piece, I received some very interesting feedback. In particular, the following comment from reader FoolishLonghorn really stood out:
At the end of day, it's about ROI.
Common parts drives down costs. Unless Apple can (a) sell more 6-plus Iphones or
(b) demand a higher price
that overcomes the higher cost of the enhanced features, it's a poor investment.
I run in different circles than the author, but no one I know uses their Iphone to play "sophisticated 3D games."
FoolishLonghorn is absolutely correct: Just about every technical/product decision any company makes is, at the end of the day, about the return on investment that company expects to generate from including a feature or functionality.
In this article, I'd like to further flesh out case for why including a significantly faster processor inside of the 5.5-inch iPhone than what Apple includes in the 4.7-inch model makes perfect sense from a business perspective.
Do iPhone users play sophisticated 3D games?
FoolishLonghorn suggests 3D gaming may be more of a niche use case for smartphones and tablets, however, I disagree. Website Developer Economics notes (citing App Annie) that games made up 40% of iOS app downloads in 2013 and 75% of revenues. People are playing -- and paying for -- games on their iPhones.
Further, it's clear Apple cares about the graphical performance of its devices. Not only does Apple include best-in-class mobile graphics processors in its mobile chips, but it even debuted a "to the metal" 3D graphics API for iOS 8 known as Metal. This API allows programmers to get closer to the graphics hardware, helping them to squeeze as much performance out of the underlying hardware as possible.
Given how much Apple seems to care about enabling iOS gaming, and given how lucrative games are for developers, it's a safe bet that the 3D graphics performance of the iPhone is extremely important to Apple.
About that ROI
Another concern FoolishLonghorn astutely brought up is the concept of ROI with respect to developing a new chip specifically for the 5.5-inch iPhone. The idea here is that it's cheaper from a design cost perspective, and easier on the supply chain management side of things, to have one chip that goes into all new phones.
Do keep in mind, though, that the incremental costs of developing a modified variant of the base iPhone system-on-chip would likely be lost in the noise of Apple's multibillion-dollar iPhone franchise. Further, Apple seems to have no problem developing a custom chip for its iPads, which are lower margin and lower volume devices than the iPhone.
Remember that Apple charges a nice $100 premium for its 5.5-inch iPhone models over the corresponding 4.7-inch models. While user size preferences probably dominate the purchasing decision, here, I do think that if the larger phone is unequivocally better than the 4.7-inch in a number of key metrics, buyers who simply "want the best," or those who are on the fence, will buy up.
Standing by my view
I stand by my view that it would make perfect sense for Apple to develop higher-performance variants of the A-series processors for the 5.5-inch iPhone going forward. The incremental investments Apple would need to make wouldn't likely be all that large relative to its monstrous revenue base, and it'd serve as yet another selling point for Apple's higher-priced iPhones.
Ashraf Eassa has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. 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.