If Apple launched a redesigned iPhone with a larger screen (of around 5 inches), it would become the “mother lode of all upgrade cycles” for the company and help reaccelerate year over year growth according to analyst Brian Marshall of ISI Group. Marshall believes many current iPhone owners experience “large-screen envy” driven by competing Android devices with bigger displays.
Marshall estimates that the current iPhone installed base is roughly 260 million users, which is equivalent to the last seven quarters of iPhone sales. He also estimates that slightly more than half of iPhone sales today go to upgraders. In his estimates, about 9% of total existing iPhone users upgrade to a newer model in the average quarter. He believes this number has actually dropped as the iPhone market has grown, having hit around 11% in 2011 and 2012.
In peak quarters, Marshall believes as many as 14% of existing iPhone owners opt to upgrade to a newer handset. With that being said, a similar upgrade for Apple’s so-called “iPhone 6” is expected in the second half of 2014, if not a higher percentage. Specifically, Marshal believes Apple could release two new iPhone models to better serve the existing smartphone market. He sees the company launching one handset with a 4.7-inch display and another with a larger-sized 5.5-inch screen. With what he believes is “pent-up demand” for a larger iPhone, Marshall predicts that the new models could drive $3.00 in additional earnings per share.
As of right now, ISI Group rates AAPL stock as a “strong buy” with a price target of $600. Marshall said that while new product introductions, such as the recently announced CarPlay or a rumored “iWatch,” generate buzz, the iPhone remains Apple’s most important product, representing 60% of its gross profits.
Marshall is one of many investors who widely expect Apple to introduce a larger iPhone later this year. Just last week, Andy Hargreaves of Pacific Crest predicted that Apple’s next handset will feature a 4.7-inch display and a $299 starting price tag. Currently, Apple’s iPhone 5S and iPhone 5C come with screen sizes of 4-inches. If Apple were to increase the display size on its next-generation handset, sometimes referred to as an “iPhone 6,” it would be the second time that the company has done so, originally starting with a 4.5-inch display on the first-gen iPhone through the iPhone 4S.
Although some reports claim Apple has experimented with iPhone screen sizes approaching 6 inches diagonally and Marshall believes Apple will launch a handset in the 5.5-inch range, proven insider Ming-Chi Kuo of KGI Securities believes Apple won’t exceed 5-inches on a larger iPhone display, citing the company’s commitment to an “unwavering principle of one hand use.” He expects the next iPhone to have a screen size larger than 4.5 inches but smaller than 5 inches.
Are you one of the people who have large-screen envy? Or do you like the current size-shape of the iPhone?
Source: ISI Group