Apple's big iPhone is a big deal

The rumor mill is buzzing with claims that Apple is planning to launch two larger iPhones

a woman

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

Despite the fact that Apple's  (NASDAQ: AAPL)  new iPhone 5s has just been released to the world, the rumor mill (Bloomberg) is already buzzing with claims that Apple is planning to launch two larger iPhones — one with a 4.7" screen and one with a 5.5" screen.

While Apple's move to larger iPhone models is inevitable, the company must be extremely careful about how it manages its suite of smartphone models going forward. Releasing a new, larger iPhone will help address more of the market, but there's a risk that if Apple simply kills the smaller iPhone, it may alienate a substantial number of its customers.

Notice something interesting?

When the large Android phone craze began to take hold, driven by models like the Samsung  (NASDAQOTH: SSNLF)  Galaxy series, it seemed that Apple eventually needed to get on board to keep its share in the high-end. Apparently, sales of Samsung's high-end Galaxy S4 and Galaxy Note III are sputtering, while the iPhone 5s continues to see demand that dominates supply. Sure, there's a market for larger phones, but high-end buyers have voted loudly with their wallets and have signaled that the current iPhone form factor is still a top choice.

Will Apple mess with its winning formula?

There's certainly nothing stopping Apple from introducing a whole family of iPhones to cater to a wide variety of tastes. Since Apple puts the bulk of its engineering effort into a few device launches per year, the company needs to be careful not to introduce too many variants to try to appease every little niche.

The smaller 4" iPhone should certainly be allowed to continue (as many simply prefer that form factor), but a slightly larger phone to capture more of the market would be a great move. As long as it's tastefully done and the product lineup makes sense (similarly to how the iPad Air and iPad Mini Retina are positioned), then there will be no problem.

Companies like Lenovo  (NASDAQOTH: LNVGY)  and Samsung have seen robust market share in the Asia-Pacific region, precisely because larger phones are simply the preferred form factor there. Apple can, and should, aggressively move to take share in this region. While Apple's brand isn't quite as strong there as it is in the U.S., there's very little to stop Apple from making an even more aggressive push with the right products.

How about the low end?

While it would be in Apple's best interest to cover as much of the high end as possible (since this is where much of the profitability in this space lies), there is the ever-present question of whether Apple should try to attack the low end of the market. In this Fool's humble opinion, this would be a mistake. While this would help raw market share numbers and drive incremental revenue, it's not clear how profitable such a venture would be for a company like Apple, which is well known for refusing to cut corners for the sake of cost savings.

In fact, in this space, the majority of the profits go to Samsung. While Samsung isn't an innovator in the same vein as Apple, it has a great cost structure since it can source almost any component that it wants in-house. This allows Samsung to build "good enough" phones at a great cost structure and flood the market with them. This just isn't Apple's style, nor should investors expect it to be.

Foolish bottom line

Apple expanding the iPhone family to include a larger phone to satisfy that portion of the market currently satisfied by Android would be a good move. However, replacing the current, smaller iPhone may be a mistake. A low-end iPhone, while great for market share and ecosystem lock-in, is also not a great idea since it's unclear if Apple could participate in this market and still generate meaningful profit.

Apple's past, present, and future are based on ownership of the highest end, most lucrative segments of the computing market. Management's job now is to find a way to grow sales domestically, and a good place to start would be by taking share away from the high-end Android players. After that, the company can worry about its next revenue expansion opportunity.

A version of this article, written by Ashraf Eassa, originally appeared on

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »