Every autumn Tim Cook stands before an audience in Cupertino, California, and declares Apple’s newest iPhone to be its best yet. Usually, the improvements are incremental, but at Tuesday’s virtual event Apple is expected to announce the biggest leap forward for the iPhone since 2014.
The widespread expectation among analysts and investors is that the newest series of handsets, presumably called the iPhone 12 and coming in four models, will be 5G-equipped, triggering a wave of upgrades among the nearly 1bn iPhone users worldwide.
“This cycle will be a supercycle,” added Wayne Lam, an independent analyst, referring to the cyclical nature of the moments consumers decide to trade in their phones for newer models. “You’ve got people that have been holding on to their devices, especially through the pandemic. So this is going to be of huge importance to them and to the industry.”
The iPhone launch, which was delayed from September by coronavirus-related supply chain disruption, comes at a crucial juncture for Apple, which has been leaning on its services and accessories businesses in recent years.
The company’s stock has gained 53 per cent this year, largely as a result of its success selling products such as iPads and MacBooks during the pandemic. If Apple can impress its fans with 5G smartphones too, it has the potential to fire on all cylinders.
Bernstein estimates that 18.5 per cent of iPhone users — roughly 180m people — plan to upgrade their phone in the coming 12 months. In the past two years, the upgrade rate has been depressed at around 16 per cent, suggesting tens of millions of users are waiting for the 5G iPhone.
Katy Huberty, an analyst at Morgan Stanley, estimates that Apple will sell 220m iPhones in the fiscal year that began this month — a 22 per cent jump from the previous year — and that annual revenue will grow more than a fifth to $327.7bn.
If Apple can also lure more Android users to switch to Apple, Ms Huberty added, she projects a “bull case” with up to 240m iPhones sold, leading to a 50 per cent gain in valuation to $170 per share, or $3tn in market cap.
“We expect this fall’s launch to be the most significant iPhone event in years,” she said in a note to clients.
Analyst’s estimate of iPhones that Apple will sell in the fiscal year that began this month
The wild expectations are notable, given that Apple is late to 5G technology. Both Huawei and Samsung, its biggest hardware rivals, introduced their first 5G phones more than a year ago.
But Apple’s late arrival is yet to dent its prospects in the new market. According to M Science, a research house, only about one in five Android smartphone sales in the US today is 5G-enabled.
One reason is that the infrastructure required to enable 5G’s potential has not been deployed in key markets. Earlier this year, mobile analytics group Opensignal reported that average download speeds were faster on 5G networks than WiFi in seven of eight countries tested — with the US being the exception.
Opensignal said US carriers were offering 5G on a part of the spectrum lacking in bandwidth capacity, meaning that average 5G download speeds were just 52 megabits per second, roughly double that of 4G speeds but 12 per cent slower than WiFi.* By contrast, average 5G download speeds in the UK were 138 Mbps, nearly six times faster than 4G and four times faster than WiFi.
There is little question, however, that 5G will soon become mainstream. As a result, for consumers buying a phone to last them three to four years — the typical length of time an iPhone user holds on to their handset — Apple’s new line-up should be a hit, said Paolo Pescatore, an analyst at PP Foresight.
“If anyone can kickstart consumer demand for 5G, it’s Apple,” he said. “While users are more wary than ever in forking out lots of money on the latest and greatest phone, they will want to future-proof their purchase.”
The price of the new phones will be closely watched. Ms Huberty said she expects prices to range from $649 for a “mini” 5.4-inch display iPhone with 64GB of storage to $1,399 for the 6.7-inch model with 512GB of storage.
The lower-end pricing would mark the continuation of a strategy Apple adopted last year, when it priced the iPhone 11 from $699 — a $50 reduction from its previous flagship, reflecting a desire to lure more users into its ecosystem of hardware and services.
A significant risk, however, is that the company could take a hit to its margins. According to Mark Bachman at M Science, 5G-enabled phones cost “anywhere between $30 and $100” more to build because of new modem and bandwidth technologies.
When Apple first adopted 4G technology in 2012, it resulted in a 10 per cent decline in gross margins, according to Pierre Ferragu, an analyst at New Street Research who has a bearish outlook on Apple. He said he expects margins on the 5G units to fall 8-10 percentage points — a big enough decline to drive a big earnings miss for the holiday quarter.
However, Apple is expected to take some steps to reduce the hit. As with the new Apple Watches it released last month, new iPhones are expected to come without a wall charger, while earphones are also expected to be dropped. That would save Apple money on components and allow it to shrink the packaging so it can ship more units.
*An earlier version of this story incorrectly characterised the speed of downloads