Quick Thoughts: Shocker! Apple Introduces the iPhone 5

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  • Despite Tim Cook’s vow to keep a lid on product leaks, the iPhone 5 was, perhaps, the least surprising Apple product announcement in recent memory.
  • Upgrade demand will be off the hook – iPhone users have waited a year for LTE and a bigger screen, and the ultra-slim profile is sexy – but expect gripes about the new connector.
  • The iPhone will be a harder sell for new smartphone customers next year – competitive specs now will be surpassed within months by rivals with much faster design cycles and differentiated products.
  • The iPad will drive Apple’s growth – tablets are hot and competition is way behind.  Farther forward, Apple’s aspirational strategy will require new things to sell its locked-in customer base.

 

In a surprise move, cloaked in secrecy and not anticipated by anyone, Apple announced a revolutionary upgrade to its iPhone – NOT.  Indeed, west coast slackers who had read any of the many rumor round-ups published the previous day could have slept right through the 10AM PDT presentation and missed absolutely nothing.  Did the iPhone 5 feature a taller, 4 inch diagonal screen with roughly the same pixel density as the vaunted retina display on the iPhone 4S?  Check.  Did the iPhone 5 finally support 4G LTE after frustrating the fanboys the previous go around?  Check.  Was the iPhone 5 thinner and taller than the previous model, but with the same basic design cues?  Check.  Did the iPhone 5 implement a new processor that delivered the power of the A5X inside “The New iPad” in a much smaller footprint?  Check.  Did the iPhone 5 feature a new smaller proprietary connection/charging port that will force existing customers to replace all of their existing peripherals or buy cumbersome adapters?  Check.

Of course, demand for the iPhone 5 will be huge – at least at first.  A year ago, more than 4 million units of the iPhone 4S were sold in the first 3 days of release, and while the 16 month wait between the iPhone 4 and the 4S contributed to greater than usual pent up demand, the iPhone 5 is a much more dramatic upgrade than the 4S.  Given the anticipation ahead of the first 4G iPhone with a bigger screen to boot, I’m fairly confident that the “Occupy Apple Store” camp outs for first customer bragging rights will underway shortly, and that the 4S sales record will be shattered.  With the iPad Mini reputedly ready to go in about a month or so – and there is no reason to doubt the veracity of the rumor mongers now – it will undoubtedly be a happy Holiday season in Cupertino, with many, many Apple products finding their way under Christmas trees around the world.

However, once the mania fell away, 4S sales tailed off, leading to a rare miss in Apple’s June quarter – could the future hold the same for the iPhone 5?  Maybe.  For the first time, an iPhone launch isn’t really moving the high water mark on industry product specifications.  The 4S had its retina display, which clearly delivered superior pixel density, and introduced Siri, which had it worked well, would have set a standard for voice controlled operation.  The iPhone 5 brags that it is the slimmest smartphone on the market.   This was a potent selling point during the 2004 heyday of the Motorola RAZR, but the iPhone5’s 3/100ths of an inch advantage vs. the Samsung Galaxy S III doesn’t seem like a competition killer.  Indeed, the Galaxy S III, which has been on sale since June, offers seemingly comparable specs to the just announced Apple product, offering a 4.8 inch screen and a removable battery to boot (Exhibit 1).  BTW if you have ever desperately searched for an outlet to steal 5 minutes of charge for your dying iPhone, you can understand the benefit of having a fully charged second battery in your pocket as a spare.

 

 

Moreover, this is it for the iPhone until this time next year.  Meanwhile, Samsung, HTC, LG, Huawei, Motorola (Google), Nokia (Microsoft), Sony and others will keep banging away, with new product introductions a few months apart.  Inevitably, these products will push the envelope, leaving the iPhone specs further and further from the leading edge as time goes on.  Apple also holds to the “one size fits all” rule for its smartphones, maintaining that the iPhone is the perfect width for the human hand, apparently believing that all human hands are the same size.  In reality, big screen models like the Galaxy S III, or the gargantuan Galaxy Note, are proving to be wildly popular with consumers.  Introducing a single product per year is great for margins, but tough on market share, a trade that Apple has historically been willing to make.  This time, the trade could leave the iPhone5 with shorter legs that could be quite tired by next summer.  Indeed, Apple’s soft June this year could be a lot softer next year.

Luckily, Apple has the iPad.  The tablet market is still nacent less than two and a half years from the first iPad launch, and competitors are still struggling to make up ground with product designs and market share.  Rampant rumors of an 8” iPad Mini suggest a greater willingness to explore a broader product approach in tablets, making it more difficult for competitors to box them as the market develops.  iPad growth MAY be sufficient to cover for a soft iPhone spring, and over the next few years, the tablet product line will be the driver for sales growth and profit.  Of course, this market will mature and competitors are likely begin shortening the product gap.

In preparation for that more distant future, I expect Apple to look for new ways to extract money from its loyal, locked in and loaded customer base, starting with extending its media distribution businesss.  iTunes is a stalwart, dominating the downloaded music market with Apple taking home 30 cents on every dollar paid to the record labels, and progress continues in pushing the same model on publishers of all ilk.  Streaming media – music and video – would seem a natural fit, perhaps tied to the mysterious iTV product that never seems to materialize, but Apple has struggled here to get access to content and is behind the curve on its cloud infrastructure.  I suspect that these obstacles are relatively temporary, and that resistance will fall as the companies that control the content see on-line alternatives building real audiences and taking real advertising revenues away from them.  Apple could also surprise us with that big screen iOS television set or some other fantastic piece of consumer electronics kit that we will discover that we can’t live without.  It has happened before.

 

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