Analysts offer 'iPhone mini' antidote to Apple's Samsung problem

If nothing really changes, Samsung is expected to widen its lead against Apple [AAPL] this year, according to Strategy Analytics. But will things stay the same, or will 2013 be the year the iPhone company changes the rules with an iPhone mini and more frequent product upgrades?

[ABOVE: An antique Apple ad extols the virtues of iMacs in different colors. With a good soundtrack.]

Fragmentation, or diversity?

Samsung has become the world's dominant smartphone maker by market share, partly by virtue of its decision to offer a wide range of devices. Apple's focus so far has been to offer one primary best-of-breed phone alongside older models.

This difference in the way they operate is helping Samsung force a strong grip on the rapidly evolving industry, and while Apple reaps the lion's share of profits, its Korean rival spends heavily on marketing in order to secure its sales.

At present in the US, Apple holds 34.3 percent of US mobile subscribers in contrast to Google's 52.6 percent, according to ComScore.

Diversification has been key to Samsung's success, though only a few of its phones can be considered directly competitive with the iPhone. This diversity helps Samsung reach value conscious customers that may not have the coin to catch Apple's iPhone train.

Responding, Strategy Analytics believes Apple's preparing to initiate a diversification plan of its own; this runs in three parts -- all of which seem broadly in tune with the Apple-watching industry zeitgeist:

  • Release frequency
  • Diversity of models
  • New products

Release frequency

There's been mutterings that Apple's iPhone release schedule may change. At present it offers an annual refresh of its flagship product. This has fostered a situation in which the company ships a new model that competitors then try to match on features and price. This means that Samsung, for example, traditionally now introduces its latest flagship Galaxy phone approximately six months after the iPhone debut.

This leaves Apple exposed, and this reflects in the number of phones the company sells: you see a spike in sales for the first few months of any new model, with the curve later maintained by deployment of the device on new carriers and in new markets worldwide, with Cupertino capitalizing on pent-up international demand in order to maintain sales targets.

It doesn't take a genius to figure out that once Apple has relationships with all the carriers and a presence in every territory, that business plan becomes less effective.

This makes it a viable proposal that in order to maintain interest in its devices it could begin to offer as many as two flagship models each year. In the case of the iPhone 5, this opens the door for a mid-year launch of an iPhone 5S model. This model would add missing features (NFC, perhaps?) to the existing device. This strategy also relies heavily on Apple's love for incremental improvements to its phones.

Diversity of models

At present diversity in Apple's iPhone universe is limited. You can get an iPhone 5, iPhone 4S and iPhone 4 (in some countries). While this makes an iPhone available to a range of customers at different prices, it doesn't quite match the impact of Samsung's broad array of phones.

What might Apple do? Topeka Capital Markets analyst Brian White speculates it might introduce iPhones with two different display sizes in a range of different colors.

"Our checks indicate that the next iPhone will have more choices for customers. This entails an expansion in both the color patterns and screen sizes with the next iPhone (i.e., likely called the iPhone 5S) that we currently believe will be launched in May/June with certain supply production starting in March/April," he wrote.

He anticipates the iPhone 5S will be made available in five colors: black, white, pink, yellow and blue.

The merit of this analyst's prognosis is that it broadens the company's reach into different segments of the evolving market. The negative impact is that offering such a diverse product range would demand different production processes for each available form -- though with approximately 205 iPhones sold each minute of each day there's more than ample sales to justify any additional production costs.

New products

"We think Apple will have to launch an 'iPhone Mini' at some point over the next three years to address the hundreds of millions of prepaid users worldwide that cannot afford the current iPhone," said Neil Mawston, executive director at Strategy Analytics.

While the analysts say this is in response to Samsung's success, it is worth observing Apple has seemingly been developing plans for new families of iOS-powered smartphones for years.

In brief, the iPhone nano/mini device would be equipped with a small screen and Siri support. You would be able to use a limited array of apps (Mail, Calendar, Maps) on the thing, rightly seen as an iOS-powered communication and personal management device.

It seems likely Apple has delayed any such plans pending development of Siri and iCloud services. You'd have little storage on these things, and you'd lack the screen real estate to rely completely on a touch-based user interface. With Siri still in beta it seems unlikely we'll see an iPhone nano this year.

Though given recent reports claiming Apple's working on a range of wearable devices, it's not insane to imagine what such a product might consist of should the company accelerate any launch plans it may, or may not, have.

"We expect the iPhone Mini to be more likely next year, in 2014 when Apple will be forced to discover fresh growth streams," said Mawston.

Yes, but...

Pros and cons to all these predictions can easily be found. One primary concern will be Apple's focus on fragmentation within the Android market. Will it be willing to impose its own slight fragmention by offering its devices in a diverse range?

Some change-resistant critics will likely argue that Apple has no need to widen its market: that it currently makes more profit than any other smartphone maker; has a huge audience of loyal (and happy) iPhone users; that it sets trends rather than slavishly following the dictate of analysts or competitors. "If it ain't broke, don't fix it," in other words.

However, change-resistance quickly becomes complacency; lack of product release anticipation becomes boring; the ability to distil, master and release devices which capture the international zeitgeist has become synonymous with most people's perception of Apple. The company is neither afraid of change, nor of cannibalizing its own markets in order to secure a firmer grip across wider strategic objectives (cf. iPad mini).

If it can think it, and make a difference doing it, then it will execute a plan. One thing it can't do, however, is stand still. The success of its fleet-footed Android enemy highlights the kind of risks it faces: though, to be fair, the continued success of the iPhone -- a single device updated annually -- also highlights just how well the company does what it does: make new and exciting products discerning shoppers choose to acquire.

It's a stretch to imagine Apple executives truly believe making iPhones available in multiple colors will be enough to sustain the device's popularity. They may prefer more dramatic diversification.

The increasing frequency of chatter from Apple analysts predicting such changes is, however, a strong indication that 2013 will be the year the future of a wider iPhone range begins.

It might also mean Samsung's expectation of growing its smartphone grip may face a few challenges -- even before the FTC-approved Googleplex storms into action with its own range of Motorola Mobility Android devices.

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