It's rumored Apple will bring a new, smaller iPhone to market next year. Who is best-positioned to profit? Hint: It's all about the A9 chip. Source: Apple
Although it's still early in the current-generation iPhone cycle, as the iPhone 6s and iPhone 6s Plus are only about a month old, that hasn't stopped the tech-focused media from speculating as to Apple's (AAPL 0.04%) next-generation unit. Luckily for future-focused readers, Asia's loose-lipped supply chain has apparently been more than willing to spill the secrets in regards to Apple's upcoming units.
In the past, for the most part, Asia vendors have been correct in regards to Apple's new features. When Apple's iPhone 5s came to market, the disclosure the unit would have its fingerprint-recognition security feature, Touch ID, was mostly anticlimactic as the hardware had been leaked months before.
More recently, Apple's current-gen differentiating feature, 3D Touch, was widely reported as being in the phone months before the official unveiling. In addition, rumors that the company was increasing its RAM storage and adding a new color, Rose Gold, were true as well. Of course, there have been rumors that haven't panned out -- Apple did not bring a carrier-agnostic SIM card to the unit.
Perhaps the most-accurate analyst in terms of supply chain analysis is KGI Securities' Ming-Chi Kuo, and he has perhaps the biggest news in the iPhone product cycle since the company introduced a second unit in 2013.
Small, medium, or large?
In a new research report (via Macrumors), Kuo details next-year's iPhone product launch. According to Kuo, as a way to tap into demand for a 4-inch model, Apple is going to launch a smaller, upgraded and extended version of the iPhone 5s.
Essentially Apple will now have three separate units, including a 4-inch one, with the 4.7-inch and 5.5-inch variants mostly differentiated by size. This smaller unit borrows from the iPhone 5c experiment in terms of providing fewer features for a lower price point. Most notably, Kuo expects the unit not to have the signature 3D Touch feature on the unit, but does expect the unit to have the current-gen Apple A9 chip (more on this later).
But perhaps the most shocking disclosure has to do with the expected launch date. In an about-face from Apple's existing strategy, in which it launches both models at the same time (late September), Kuo thinks Apple will bring this device to market in the first half of 2016 as a mid-cycle offering. In perhaps a positive note for investors (more on this later), Kuo estimates the company to ship 20 million-30 million units of this new phone through the end of 2016.
Possible winners and losers of a new iPhone unit
While it is easy to quickly say Apple investors would win by offering a new lower-cost unit, the reality is -- economically -- a little more complicated. The key here is if the new unit would cannibalize higher-end iPhone 7 and iPhone 7 Plus sales, pulling revenue forward and driving down average selling prices and total revenue. Or would the unit succeed in expanding Apple's consumer base and continue to steal market share away from Android-based vendors like Samsung (NASDAQOTH: SSNLF)?
It would be equally easy to say Samsung would lose to a lower-cost iPhone competitor, but that's a premature judgment as well. Considering Samsung is primarily interested in moving its high-end Galaxy line in developed markets, and those units boast large screen sizes, Apple's rumored 4-inch [possible] mid-range, smaller-display unit may not steal significant market share.
On the other hand, Samsung will probably continue to fab a portion of Apple's A9 chips, helping Samsung's high-margin semiconductor business. In Samsung's recently reported quarter, the company's profitability was led by its Device Solutions division, which is heavily influenced by its semiconductor business, versus its IT and Mobile Communications division, which is mostly comprised of smartphone sales.
For perhaps the easiest win, look no further than the other supplier of Apple's A9 chip: Taiwan Semiconductor Manufacturing Co. Considering the company will continue to source the A9 chip, and has no products with which a new phone will compete, incremental sales of 20 million to 30 million units would be a big win for the company, even if the company is only providing roughly half of the chips.
