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Apple Inc. Should Consider a Fourth iPhone Size

By Ashraf Eassa - Feb 15, 2016 at 1:30PM

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Apple should examine this move in a bid to gain market share, boost iPhone average selling prices, and smooth out iPhone revenue.

Up until late 2014, Apple (AAPL 0.63%) only offered its flagship iPhones in one size: 4 inches. This proved something of a problem as the market was quickly shifting to larger-screen devices. However, with the launch of the hugely successful iPhone 6/6 Plus, Apple was able to capture significant high-end market segment share as well as boost iPhone average selling price, leading to a banner year for the company.

That said, the iPhone 6s/6s Plus aren't faring as well in the marketplace, with the company expected to post its first-ever year-over-year decline in iPhone sales in the current fiscal year.

Interestingly, it is rumored to be preparing a new 4-inch iPhone for launch in March, but this phone is unlikely to drive the major boost in iPhone sales that a new flagship would. This does have me thinking, though, that Apple might be wise to introduce a fourth iPhone size, a device larger than the current 5.5-inch iPhone flagship.

Such a device could have a display size of between 5.7 and 5.9 inches, be packed to the brim with the latest technologies and priced even higher than the iPhone Plus models. In other words, an "iPhone Pro."

If Apple releases such a device in the spring alongside its newest 4-inch iPhones, then this could potentially be a boon for its iPhone business.

Potential ASP boost keeps customers/investors excited
Such a device, launched in the spring, could serve to offset the natural average selling price erosion that occurs throughout the iPhone product cycle. Remember, we're talking about a phone that would be newer and more sophisticated than the standard iPhones, so it would be priced at a healthy premium to the Plus model.

Additionally, since the device would be more expensive than even the Plus models, Apple would have more bill of materials wiggle room to use even more expensive/compelling components (think displays, memory, camera, and so on). It would also be an opportunity for Apple to introduce technologies that weren't quite ready for the 4.7/5.5-inch iPhone launch in the fall.

Not only would such a device pack in premium components and carry a high average selling price, but a launch of a true flagship device in the spring would allow Apple to successfully maintain mind-share among consumers as Android flagships tend to launch in this time frame. Good for Apple, its customers, and ultimately its shareholders.

The possible downsides
There are certainly downsides associated with such a product launch strategy. For one thing, if Apple were to launch such a device in the spring, customers will assume that all future iPhone Pro models will come in the spring. This means that the buyers who would have traditionally purchased an iPhone Plus in the fall will now hold off on future purchases until the spring.

To be sure, such a purchase deferral wouldn't hurt Apple's full-year sales, but it could paint an unduly negative year-over-year comparison for a couple of years until such a release schedule is the norm.

Another downside to this is that although the "iPhone Pro" would be on top of the iPhone heap in terms of technology and features, it would be leapfrogged by the 4.7-inch/5.5-inch iPhones launched in the following fall.

It'll be interesting to see what Apple does from here
Apple management generally knows what it's doing, and I suspect that despite the protestations that the iPhone sales decline that the company is likely to face this year are due to macroeconomic weakness, management is going to look for ways to ensure growth over the long term.

Introducing a higher-priced, larger iPhone either in the fall or in the following spring is something that -- were I running the show in Cupertino -- I'd be taking a very serious look at.

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends 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.

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