Please ensure Javascript is enabled for purposes of website accessibility

1 More Way Apple Inc. May Unleash Its Biggest iPhone

By Ashraf Eassa - Feb 6, 2016 at 9:30AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

With Apple reportedly set to differentiate its smaller and larger flagships by cameras and displays, it seems likely that the larger phones will eventually get a custom chip.

A little while ago, I suggested that Apple (AAPL -1.80%) would be well served by more significantly differentiating its larger "Plus" iPhones from its mainstream iPhones. Much to my surprise (and joy), the rumor mill is abuzz with the idea that Apple will reserve a significant new camera feature for the "Plus" version of its next generation iPhone -- and potentially even a higher-end variant within the Plus line.

I believe that the differentiation on the camera, and potentially a few other areas, such as display size/resolution, as well as included RAM, is just the beginning of Apple's attempts to differentiate its larger phone from its smaller one. Such differentiation makes a lot of sense because, in a low-unit-growth environment, a common strategy is to focus on driving upsell to products with higher average selling prices/margins.

Should the rumors of what Apple is planning to do with iPhone 7/7 Plus come to pass, I would expect one more major differentiating factor to come to iPhone sooner rather than later.

Chip differentiation
Apple used the same A8 processor in both the iPhone 6 and 6 Plus, and yet again used the same A9 processor in both iPhone 6s and 6s Plus. KGI Securities' Ming-Chi Kuo believes that both the iPhone 7 and 7 Plus will use the same "A10" chip.

However, I believe that, at some point, Apple will develop separate processor lines for each of its iPhones, especially if the smaller and larger iPhones continue to diverge in terms of features and functionality.

For one thing, future larger iPhones will almost certainly have higher display resolutions than the smaller iPhones. This means more pixels to push, necessitating a faster on-chip graphics processor in order to deliver "equivalent" user experiences in 3D-intensive applications such as games.

To feed such a graphics processor, Apple may need to add a beefier memory subsystem in a chip targeted at a larger iPhone. Apple would also likely have additional headroom to scale up CPU performance. Both of these moves would be straight out of the same playbook that Apple uses to craft the "AX" chips aimed at the iPad.

Further, if the larger iPhones feature increasingly more capable imaging capabilities, Apple may need to include a more robust on-chip image signal processor onto a chip targeted specifically at the "Plus" models.

If iPad gets custom chips, why not iPhone Plus?
Apple spends a lot of effort putting together specialized chips aimed at the iPad. Given that iPad sales are a mere fraction of iPhone sales, and given how much more important iPhone is to Apple's bottom line than iPad could ever hope to be, I don't think this is unreasonable to expect.

Such a move would add incremental chip development costs -- a drop in the bucket for Apple, though -- and it would make managing chip production/inventory a little tougher; but it's likely to be totally manageable. Apple has a good idea at this point of what ratio of "Plus" to "non-Plus" iPhones it sells -- something it didn't really know when it first launched the iPhone 6/6 Plus.

When might we see Apple introduce such differentiation?
I don't expect Apple to do this chip-level differentiation of the iPhone and the iPhone Plus models until, at the very least, the iPhone 7s. However, it wouldn't surprise me if iPhone customers will have to wait until the iPhone 8 or beyond before the company differentiates the phones in this manner.

However, I'm fairly convinced that it's only a matter of time before it happens. Apple surely wants to sell customers up to the "Plus" models as much as possible, and the promise of more performance to go with all of the other added goodies can only help in the quest to do so.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$136.72 (-1.80%) $-2.51

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.