updated 11:53 pm EDT, Wed April 30, 2014
Apple could add up to 15 million more iPhones per year with larger size
A new study by Morgan Stanley's Katy Huberty suggests that if Apple were to produce a five-inch iPhone model, it could move as many as 15 million additional units per year in the US, mostly from customers that would switch to Android. In a note to investors, Huberty told her clients that nearly half of the survey respondents -- 47 percent -- would choose an iPhone over other smartphone brands if it came in a larger size, suggesting that a major factor in US Android phone sales is simply a matter of screen size.
The prospect might be tempting to Apple, even though it has in fact been growing its US share as its chief rival, Samsung, has seen its share of the US market flatten and even drop slightly. While an additional 15 million iPhones in the US market over the course of a year would not amount to much on Apple's scale, it could provide a key sales and profit advantage that would push back against the Korean company's aggressive marketing.
Rumors and dubious "leaked models" and cases for the "iPhone 6" have suggested that Apple is likely to offer a 4.7-inch model, a significant increase over the current four-inch iPhone 5c or 5s, but even if true the model may not be the only offering from Apple in 2014. Last year, it jettisoned the iPhone 5 (which would normally have moved into the "mid-range" position) in favor of the slightly-different but new iPhone 5c model, which CEO Tim Cook pointed out recently has actually done better as the mid-range offering than the iPhone 4S did in the same position last year.
It is entirely possible that Apple will continue to offer the iPhone 5s after the next rollout as a premium-but-smaller iPhone, still very popular with buyers who don't require larger screens or who like the pocketability and the one-handed use of the current model. A new "iPhone 6" at 4.7 inches and perhaps another model (that might come after the holiday buying season) that offered an even larger screen, with both of the larger devices being the "premium" models and the iPhone 5c moving into the "entry-level" position, with the iPhone 5s taking the "mid-range" point.
More models of currently-in-production iPhones at varying price points might also give Apple a boost with its carrier partners, offering more direct competition to the larger variety of models provided by Samsung and other companies. More models might also attract buyers switching from another network or from Android. Huberty believes that such a move would hurt Sprint and benefit T-Mobile, which has been more aggressive about attracting switchers, AppleInsider reports.
Also according to Huberty's survey, an astonishing 90 percent of iPhone buyers intend to remain loyal to the brand, and she expects that eight out of 10 iPhones sold in the US this year will be to existing users. With that and the expected changes in the next iPhone models, Morgan Stanley raised its price target for AAPL from $630 and $690, expecting a gross margin of 39 percent and trading at a P/E ratio of 15.
"The top criteria across all brands are longer battery life, software/operating system, and lower price, though current Apple users think price is of lesser importance," Huberty said in her memo to investors. "Current iPhone owners value the software, brand, ability to synchronize to other Apple devices, and the App Store's quality and size more than the [Android] user, which drives Apple's high loyalty rating."