End of the S?

by Damien

The rumor mill is suggesting that this years iPhone won’t receive a major case redesign which opens up some interesting discussion. Let’s start by looking at some of the reasons Apple would make this decision:

  • Technical Bugs Rumors of new case materials and OLED screens have been around for a while but really started gaining some traction last year soon after the 6s/6s+ were announced. An all-glass enclosure that drops the physical home button and features an OLED display sounds pretty ambitious. Technical difficulties in manufacturing a phone this complex could be a major reason Apple has decided to wait until 2017.
  • Margin/Cost This ties in to the first point, but manufacturing costs for the various components may be too much of a hit to gross margins this year. Apple may foresee enough of a price drop in the next 18 months to justify a delay.
  • Cycle/Market Analysis The smartphone market is slowing. iPhone growth is expected to decline this year for the first time ever. While many believe this is “peak iPhone”, Apple may believe this is just transient.  It’s possible this may have persuaded management to go with a more conservative iPhone prototype this year, allowing them to wait out a perceived temporary dip in worldwide smartphone sales.

Whether one, or as I believe, a bit of all three, have caused Apple management to go with an S-like update for the iPhone 7, it now merits some discussion about future naming schemes, and even the future of the iPhone itself.

Apple executives could end the “S” cycle and introduce “iPhone 8” next year instead of “iPhone 7S.” But I’ll take it one step further and say why not end it all together?

We know the global smartphone market is slowing, and at the same time iPhone upgrades become more iterative every year. With less incentive for customers to upgrade to a new phone every year (Facebook and Snapchat work just as well on a 5s as they do on a 6s), removing the S-cycle makes sense for many reasons. Apple gets a bit of mystery back as to when full redesigns would come. Keeping the Apple-obsessed press guessing is nothing but good PR for Cupertino as things a pretty predictable now. More importantly, you set up the perfect segway to cannibalize the iPhone. Instead of sitting back and waiting for someone else to create that next big thing after iPhone,  Apple wants to create it themselves. One of management’s major strengths the last decade has been a willingness to take risk and cannibalize their best selling product for what they perceive as a the next step.

iPhone presentations are getting long in the tooth. By changing the pace this year and dropping the “S,” Tim Cook can introduce the “iPhone 10” in 2019. If that date sounds familiar it’s because that’s also the year they are rumored to unveil Apple Car. At this point we’ll also be seeing a completely untetehred Apple Watch 5. How many tasks will we have offloaded to these devices that we previously used iPhone for? iPhone has a perfect exit from the main stage in a few generations if Apple drops the “S” cycle next year. Management can then drop the numbers naming scheme all together and put the iPhone in a Macbook like update cycle; quiet, once a year bumps to internals, with a new form-factor on a non-defined schedule. No events.

They can replace lost iPhone revenue not with one thing, but many things over time. iPhone accessories (think DSLR-like camera lenses, speakers/headphones), Apple Watch, and Apple Car are all possible candidates. And that R&D budget will keep pushing the envelope forward with new forms of computing related to fashion and the home as well.