Apple's iPhone 5s. Source: Apple.
According to a report from KGI Securities analyst Ming-Chi Kuo, Apple (AAPL +2.66%) is preparing to launch a new 4-inch iPhone at some point in the first half of 2016.
The phone, Kuo claims, will resemble an "upgraded iPhone 5s," suggesting that Apple will adopt a metal casing material rather than the plastic used to build the ill-fated iPhone 5c. Kuo also claims that, in order to ensure that iOS 9 runs smoothly on the device, Apple may choose to include its latest A9 processor in the phone rather than use an older-generation A8 processor.
Finally, Kuo says that in order to differentiate the larger devices, the new 4-inch iPhone will not include the 3D Touch feature that debuted on the iPhone 6s and 6s Plus.
Let's take a closer look at this report to see if it makes sense and, if so, what it might mean for Apple's business in the coming fiscal year.
The specs check out
The Apple A8 chip inside of the iPhone 6/6 Plus did not offer a particularly large boost in performance from the A7 chip inside the 5s, while the A9 offered a large boost over the A8. From that perspective alone, it makes sense that Apple would choose to equip a new, smaller iPhone with the A9 rather than the A8.
Additionally, the A8 is built on TSMC's (TSM 1.75%) 20-nanometer chip manufacturing process. Given that TSMC has made it clear that it would like to convert over its 20-nanometer capacity to 16-nanometer capacity, it probably doesn't make sense for Apple to have TSMC keep a bunch of 20-nanometer capacity up and running for longer than it needs to, especially given the performance/power enhancements that the 16-nanometer technology brings over the older 20-nanometer technology.
The lack of 3D Touch also makes a lot of sense for a lower-cost 4-inch device. For one thing, Apple probably wants to keep some features exclusive to the larger, higher-priced models in order to keep its product mix as rich as possible. Additionally, I'd imagine that 3D Touch is a non-trivial cost-adder, so Apple is likely to exclude it from the smaller, lower-cost phone to keep product margins in check.
This could help boost Apple's iPhone sales in the current fiscal year
There have been worries that Apple could see its iPhone sales decline in the current fiscal year as a result of tough comparisons to the very robust upgrade cycle Apple saw with the iPhone 6/6 Plus last year.
Although it is clear that many within the iPhone installed base, as well as owners of smartphones from other vendors, had been looking forward to Apple launching larger iPhones, there are still likely many potential smartphone buyers who simply don't like larger phones.
By releasing a new 4-inch iPhone that's significantly upgraded over the prior-generation 5s, Apple can capture sales from those who held off from upgrading from both the 5 and 5s because they simply preferred smaller screen sizes.
Additionally, in the world of Android phones, there don't appear to be all that many compelling 4-inch class devices, so Android users with older 4-inch class devices looking for worthwhile upgrades might be compelled to make the switch over to iPhone.
All told, the launch of such a device could ultimately help boost Apple's iPhone sales figures and overall smartphone market share in the coming fiscal year, perhaps allowing it to achieve iPhone growth in the current fiscal year.
