Come iPhone 6 launch time, Samsung will lose my business to Apple

Come iPhone 6 launch time, Samsung will lose my business to Apple

AAPL has confirmed the next iPhone event will be held on September 9. In eleven days we expect to see a 4.7-inch iPhone 6 and some kind of wearable device. There are rumors of a larger, 5.5-inch iPhone as well, along with rumors that it might cost more than the smaller sizes that came before it. Will anybody want a 5.5-inch iPhone? Can Apple justify a higher price for one? What does it mean to the company's potential profits?

In emerging markets folks who need a phone rely on it as their only computing device. So big phones are more popular. In the western markets people tend to own phones and either tablets, computers or both. So "phablet"-sized phones haven't sold in as large a number.

That said, if you can sell a larger phone to a big enough audience and justify a higher price point such that it produces appropriately higher gross margin, it makes sense to do so. Samsung offers the Galaxy Note series of phablets with a 5.7-inch screen. I don't think Samsung is a dumb company. They're about to introduce the Galaxy Note 4, which we'll easily find on North American shelves. Clearly they believe demand for this form factor is high enough to justify selling. So why not Apple? The anticipated 5.5" iPhone 6 will only be a tiny bit smaller than the Galaxy Note, meaning that Apple will have essentially closed every possible gap when it comes to size.

Historically, Apple has done a good job of making different price points easy to understand. The 15-inch MacBook Pro is not only larger than the 13-inch version, but when comparing the base models you'll find more memory and processing power in the 15-inch version. When it comes to iPhones, Apple has traditionally offered the same product with 3 memory storage size options at different price points. The extra memory is always sold at insanely high gross margin, but it's easy for a layperson to understand why there is a price difference. The iPad Air and the Retina iPad mini are almost identical except for screen size, so it's easy to understand why you're paying more for the Air.

This is what leads me to believe Apple can justify launching a 4.7-inch version of the iPhone 6 followed by a 5.5-inch version at some point in the near future. People who want the larger size will understand that it costs more, and Apple may be able to further justify a higher price (and higher margin) by offering improved camera optics, or something else to add to the larger size's uniqueness.

We should be asking if a 5.5-inch iPhone will help Apple's profits or not.

Some people might ask if a 5.5-inch iPhone would cannibalize the iPad Mini. The way I see it there will always be some (non-zero) cannibalization when you introduce a new product that fits in between two existing products. And that's fine. But when we start to use words like cannabilization we're discussing the business of Apple. If we're going to go down that road we ought to stay focused on what really matters: profitability. We should be asking if a 5.5-inch iPhone will help Apple's profits or not.

It's quite obvious to me that a 5.5-inch iPhone would boost profitability no matter what level of cannibalization were to occur. The existing iPhone 5s is more expensive than an iPad Mini with higher margin. Even if Apple slightly dropped the price of a 4.7-inch iPhone relative to the 5s, and kept the 5.5-inch version at about $600, Apple is better off selling the phablet than the iPad Mini.

Similarly, any sales of the 4.7-inch iPhone that are lost to the 5.5-inch iPhone result in higher revenue and gross margin versus the alternative.

Now let's look at the world outside of Apple. Read comments on any Apple fan site and you'll see that people have been wanting a larger iPhone for quite some time. Some of these people are sticking with Samsung or other Android phone vendors because of screen size, despite believing that iOS is better. Apple is likely to win over some of these customers with a larger form factor (or form factors).

When I pick up my wife's iPhone or our iPad Mini I find them so much simpler and more enjoyable to use.

I'm a good example of this. After being a BlackBerry user for about 13 years I made the switch to Android about one year ago. I currently use the Galaxy S4 as my primary phone. Although I have always hated the complexity of the Android OS, I have fallen in love with the drastically improved app store and built-in Google services. Oh, and I admit I'm a big fan of the 5-inch screen size. But I much prefer iOS to Android. When I pick up my wife's iPhone or our iPad Mini I find them so much simpler and more enjoyable to use.

Come iPhone 6 launch time, Samsung will lose my business to Apple. I'll finally be able to have the large screen, enormous selection of apps and the best of what Apple and Google have to offer in one phone.

Will I go for the 4.7-inch or the 5.5-inch iPhone? Personally I'll probably stick with the smaller version. My Galaxy S4 is already borderline too big to hold comfortably in one hand or put in my pocket. But that's just me. Women who carry a purse might love the 5.5" as might men who wear a suit and can comfortably tuck their phone away in the inside breast pocket.

As a consumer, I think the added choice will be nice. As an investor in Apple, I think the 5.5-inch option can only increase profits. That's win-win.

Chris Umiastowski

Chris was a sell side financial analyst covering the tech sector for over 10 years. He left the industry to enjoy a change in lifestyle as an entrepreneur, consultant, and technology writer.

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Come iPhone 6 launch time, Samsung will lose my business to Apple

35 Comments

Oh, it will definetely make money.

As always, Apple watches and follows with execution. They've seen what works and doesn't work with phablets and will be able to deliver a good product.

I will give Samsung credit where its due though. They saw this phablet catorgory and capitalized on it at such an early stage, that even Apple will have to put in a good marketing effort to dissuade people from Samsung in this area.

It may very well be the first time that we see normal consumers say that Apple is copying Samsung...

You won't regret it, Umi. I finally put my BlackBerry away in June. I could not be happier and more satisfied with my choice of phone. No bricking, no nuking, no rebooting....all the apps I want and need on a dependable, high quality device. Stellar, effortless support.
I only wish I'd done it earlier. When I think of all the aggravations of the last few years dealing with BlackBerry's drama, I kick myself for waiting so long.

It's a lot more relaxed. :-D
I decided to move on from CB duties after I retired my Q, so I transferred over to iMore. Folks are awesome here and very welcoming.

I like my iPhone 5s but using an iPad Mini the iPhone screen seems small at times. So I will be getting the 4.7" when I do get a new iPhone. It is bigger than the current screen but still small enough to fit in my pocket and not look ridiculous when I hold it to my ear for a call. I am interested to see how Apple is going to do a Phablet in order to compare it to the others that are already out there. Do I think it's time they did it, sure the competitors are selling so why wouldn't Apple? It's really all about ecosystem and if a person would have bought an Apple device but was looking for a bigger screen that's another person sucked into the ecosystem. So it's more than just the hardware or screensize. It's profits from apps, media and other things in the ecosystem as well.

Great, well-written article. Myself? I went with the Moto X specifically for the larger screen. I found the iPhone 4" display too small. Now that Apple is making a 4.7" smartphone (same as the Moto X), I am completely on board with the new size. Additionally, the 5.5" is on my radar, and I will be very interested to see it in person to gauge whether it's too big. Either way, Apple gets my money.

Sadly iphones boxed and closed system lost me, i need something i can change and modify. Currently with a Sandstone 1+1 on the side and its a nexus grade android on sterioids, if apple ever opens the box to let things change i might look in that direction again.

Hi there - out of curiosity what do you need to change / modify specifically? What would you find yourself unable to do if someone forced you to use an iPhone going forward?

Not the grandparent poster, but my wife is on her GS4 mainly for swype, for certain types of inter app communication, for screen size, for Google Now, and for widgets (yes, she actually uses and loves them). iOS 8/iPhone 6 will give her 2 to 2.5 of these things, depending on how creatively developers use extensions.

It might not be enough to make her switch, but she has been looking more seriously at iOS than she has in years...

Sent from the iMore App

iOS 8 will provide even better widgets since they will be located inside a special area in the notification pull down called Today. This is better than having them on the home screen because you can't see the home screen if you are in an app, but you can always pull down the Today shade to check a widget for instant glanceable info anywhere you are in the phone, at any time. Also, custom keyboards are now going to be available on iOS, and there's already at least 3-4 ready for launch. So Swype, or an even better version like SwiftKey, will already be there. Extensions will also provide inter app communication, and in a better, more secure way than on Android. iOS 8 will now, FINALLY, bring all those things people love about Android to iOS. Some people still complain that iOS is just that same old grid of icons from 2007, but that's extremely ignorant to what iOS can do and how it has evolved over time. Android still also has that same old grid of icons in the app tray. Well, iOS has a different philosophy in that it puts Android's app tray front and center on the home screen so you can get at your apps fast, and puts controls, notifications, and widgets into the pull down and pull up "shades" which are accessible from anywhere. There's no missing functionality, just a slightly different approach with the UX.

Nah, there is still loads of missing functionality. Widgets on the notification area, for example, are not nearly as flexible as those on Android -- they cannot be resized, grouped, made out of arbitrary shortcuts or data snippets, or given system level privileges. And extensions, while a fantastic addition to iOS, did not go quite far enough, with my primary missing feature being user-selectable default apps.

These missing functions are not enough for me to ditch my iPhone for an Android (if they were, I wouldn't have been on iOS all these years already), but they are things that might keep somebody on Android, or that an Android->iOS switcher might miss.

If you love Google now like I do then I can't do iOS. Google Now is in Android at a system level that Apple won't allow on iOS. Using a GS4 you picked just an OK Android device. If you wanted something that truely shows Android you should have gotten a moto x. It has true google android (there is a difference) instead of Samsungs Touch UI which slows everything down and looks bad to me. I'd rather have the new moto x +1 and get true Google Now as well as the innovations that Moto puts into their phone.

http://www.motorola.com/us/Moto-X-Features-5---And-There's-More/motox-fe...

Watch the videos. The new one comes out around Sep 3rd.

PS. I also think the new version of Android is going to be as fluid and smooth and beautiful as iOS.

http://android-developers.blogspot.com/2014/08/material-design-in-2014-g...

No reason to miss it. With new moto X coming plus the new update to Android L you'll have as good of a UI as Apple yet more flexibility and Google NOW for the win!

If you use Gmail as your primary email and calendar, and also have Google Maps on your iPhone, I don't really know what having Google Now "at a system level" would improve upon that? Google Now is not part of the Android kernel, it is an included piece of software on Android just like Google Maps on Android. It hooks into many things, but most of the services people use with it hook out of their Gmail accounts. I think using Google Now on iOS, as long as you subscribe to the Google garden of services, works just as well for most of what people use GN for, and provides the best of both worlds.

You have to experience to know the difference. It is the difference between an app and something integrated into the system. Right now on iOS you have to run Google. On Android esp Nexus line and Moto X it always there working for you. I swipe left and I get Google now. Time to leave for a meeting it lets me know. I SH** you not. I was about to leave from work and flipped left on my home screen which takes you to Google now and my map home was RED saying 1h 45 min home. I was able to head to my sisters and avoid sitting for an hr in traffic. Being built in allows me to do a voice search without having to be in the search app. On the moto x your phone can be screen off and you can do a voice command. Having to run the app and making it a 2nd class citizen really cripples the nature of Google now. On iOS it's like have a secretary who can only help you when you ask her and then call her and say did you do it? A secretary needs the freedom to work on her/his own and say "hey" to call your attention to things. Apple will never allow this deep API's which means after a set amount of time Apple shuts the program down to save battery which is like sending your secretary home for the day. Not sure if you remember but Skype came out on Windows Phone and it only worked if you run Skype meaning if people where calling you in Skype you either had to keep Skype app running taking up the whole screen to get sky calls and once you exited no more calls. You tell me. Is any chat app worth running on the screen the whole time to make it work? NO, I want to be able to do things and still get a WTF moment where I'm like "How did it know I needed or wanted that?" So cool.

I personally don't like being in a box, you cant change ringtones without buying them there is no way to mimic BlackBerry notification sounds on a per app basis and just a few other items but those are my main gripes.

Seems i wasn't specific enough, i need to make sure every app has a different tone it helps me tell if i need to action it right away or just let it slide for a bit. BlackBerry your able to make sure every app has its own tone and LED colour which makes my life 100 times easier when trying to be productive,

Likewise i can mimic these abilities on android especially with running cyanogenmod the most customizable OS on the market, this also helps me stay longer as i tend to get bored very quickly and jump around.

One of the most annoying things about iOS devices is storage. The inability to take large chunks of media off the device and into a memory card/external storage. You've got that ipad camera connection kit but guess what, it only goes one way, IN. That's pretty ridiculous and an artificial limiter to make your life miserable so you pay their ridiculous (for 2014) memory price tiers.

I too found iOS to be too closed a system and lacking for my needs. I jailbroke both my iP4 and 5 when I had them to allow for the visual and system customization I sought. I use a Note 3 now, and like Vinny Jr, run my company off the thing. The TW UI doesn't bother me and what most posters on this site call gimmicks are actually useful features that I make use of on a daily basis. Might I add the S Pen is a brilliant addition on Samsung's part. I like having a native file explorer, I like being able to attach any file to an email from my phone, I like being able to drag and drop files to my phone from my computer or vice versa, I like having widgets on my homescreen(s), and I like not having to wait for my manufacturer to "allow" me to have features like quick response/compose for messaging or third party keyboards.

On the hardware side, I like having expandable memory, the ability to swap out batteries, no longer having to find a remote (didn't think this one would mean so much when I first picked it up), a wireless charging option, and NFC.

Will be buying the 4.7 inch iPhone 6 with as much memory as they offer to replace my 5S with 64gb of memory. I also use the Note 3, run my constr. company off it on a daily basis strictly due to the S-Pen features. I wouldn't buy the Note if there wasn't the S-Pen, that is the most powerful tool in the mobile industry. Once you understand what can be done with it you would never go without it. I also have the iPad mini with retina display with 128gb of memory, love it, wish it had the S-Pen features, would sell even more if possible. Very excited for 9/9/14.

I love people who like to use different devices. I don't think I could stand the lock down of only one. I just enjoy the variety that's offered.

They may well lose my business too. I use a Samsung phone mainly because it has a large display, Swype, Widgets, a filing system and good sharing options. Ios 8 and the iPhone 6 looks to address these issues. So if I like what I see I will probably make the jump back.

Posted via my galaxy S5

Samsung lost my business before I knew there was a bigger iPhone. I like my note 3, but I've had it with Samsung as I've had too many issues with it already. Pretty much ios8 fixes 9/10 of my ios annoyances so I see no reason to not return to apple for my next phone upgrade.

I don't really have any problem with my Samsung phone it works perfectly well. However I just prefer the Apple ecosystem. I already have an ipad air, an ipod touch 5th generation and an Apple TV. They all work well together. I've been buying stuff from iTunes and the app store since 2009 and even before that my music. I've built up a huge library of TV shows, movies, apps and music. Although I've been using android for two years I've stayed in the apple ecosystem, whilst never really buying into the Android one. It just makes sense for me to come back. I can't see a reason why I shouldn't.

Posted via my galaxy S5

I'm halfway with you. I'm happy with Android and have no plans to switch, but iOS 8 does look like it has fixed a lot of the major issues I've had with the OS since its inception. Lack of a customizable keyboard was the biggest sticking point for me when I first tried an iPhone back in the 3G days.

Posted via the Android iMore App!

Samsung lost my business with the S3..question is...can apple life me away from my HTC M8, or the windows version of the same?

Posted via the Android iMore App!

I think it's clearly the case that Apple doesn't need to make a bigger phone - their business is doing just fine as is - but as a consumer that enjoys a larger screen, it's the only thing that could bring me back to iOS for a daily driver. I've got pretty big mitts, and as such it's uncomfortable typing on small devices. The 1520 I use now is outstanding for this. A 5.5" device is about the smallest I'm willing to go at this point.

I am interested in a larger iPhone. I have a OnePlus One and am interested in the 5.5 inch iPhone. I will not leave android but have devices on three platforms. I think many large screen android people with try a larger iPhone. It is easypeasy and the apps cannot be beat.

Posted via my OnePlus One!

I feel with the release of a large iPhone, consumers will swam to it even more than they did in the past.
My biggest gripe with iPhones in the past was why they didn't follow the likes of Samsung and HTC in at least, bare minimum, offer a larger device.
Anyway, in a few weeks, that will be offered, and quite a few people will be happy...

Samsung sold 10,000,000 Note 3s in the first 2 months. Apple should easily beat that number. I am replacing my Note 1 and I do like iOS better; had a 3GS before the Note.

One thing I do wish Apple would do is change or allow us to change the home screen. I would love to have a custom home screen instead of just being able to change the backgrounds. And please, please, at some point Apple, add bulk delete to Mail!!!! I'm so tired of having to delete EACH message one at a time.