Hell no, Apple shouldn't go slow on iPhone tempo

But company may find it hard to break out of its current two-year cadence, say analysts

iphone 6s 6splus
Jason Snell

Apple would be making a mistake slowing down the cadence of major upgrades to its iPhone, said a pair of analysts today, who argued that the company should instead try to speed up the pace.

Their comments were sparked by a Nikkei Asian Review report last week that asserted Apple was shifting to a three-year interval between significant iPhone upgrades. The business paper's proof was thin: That the upcoming iPhone 7 will "look almost identical to the current iPhone 6."

If accurate, Apple would abandon its two-year rhythm that debuted a form factor change in even years, followed by nearly identical models that retained the exterior look in odd years, designated with an "S" appended to the label.

For example, Apple rolled out the iPhone 6 and 6 Plus in 2014, then introduced the iPhone 6S and 6S Plus last year.

"That tempo served Apple very well," said Jan Dawson, chief analyst at Jackdaw Research. "If they lengthened that, it would make even fewer reasons for customers to upgrade. Apple needs to do whatever it can to stimulate sales."

"It would be a mistake to do anything less than every two years," echoed Patrick Moorhead, principal analyst at Moor Insights & Strategy. "Instead, Apple should be thinking 'How do I increase the cadence to give people more reason to upgrade their iPhones?'"

Questions about the iPhone's even-odd strategy -- which has been in place since 2009 when the iPhone 3GS followed 2008's iPhone 3G -- surfaced after Apple's April earnings call with Wall Street, when it reported the first year-over-year revenue decline in 13 years as iPhone sales slumped 16%.

Some immediately urged Apple to speed things up as a response to the iPhone downturn, assuming that the more frequently new models appeared, the more likely it would be for customers to lust after that new shiny. Others only hinted at the recommendation.

"I do question how much longer Apple can afford to stick with the 'S' strategy," wrote independent analyst Ben Thompson on Stratechery on April 27 (subscription required). "One could argue the 'S' lines are introducing a holiday quarter-like dynamic into Apple's earnings but on a two-year basis."

The every-two-year-we-change-things approach was based on solid ground, said Dawson and Moorhead, who cited economies of scale from sticking with the same screen size and amortizing each case design and tooling over 24-mouth stretches, part of the reason Apple has been able to book billions in profit. But it was also crafted during a time when the smartphone market was much different than today.

"The two-year carrier contract was standard," said Dawson, "and so for most people there was a change in form factor and an advance in hardware every two years. That made for fairly compelling steps up."

But as the smartphone market matured, carriers began dispensing with the subsidies they offered at the end of each two-year contract, instead selling devices at full price but spreading out the payments over 24 months. After the phone is paid off, a consumer's carrier bill drops, encouraging many to simply keep what they have. Under the older schemes, the subsidy was invisibly baked into the bill; but the bill didn't decline after two years.

"There are no big missing features in today's smartphones," said Dawson, who characterized older devices as "perfectly viable." That, in turn, means that buyers no longer have such strong incentives to upgrade as when, for instance, Apple expanded the screen size (first in 2012, then again in 2014) or supported faster carrier speeds (2008).

Dawson and Moorhead believed that to slow down the tempo of change would be a mistake, but were unsure if Apple would -- or could -- quicken the pace.

"It would be extremely difficult to change [to a faster cadence]," said Dawson. "There are enormous ramp-ups of production to come up with 60 [million] to 100 million by the fourth quarter. You can't turn on a dime when you have a supply chain as large as Apple's."

For his part, Moorhead implied that Apple would have trouble shortening the interval between new models because it would stretch engineering resources. The set schedule -- as opposed to a ship-when-ready model -- was a big motivator to Apple internally.

"There's a genius to Apple's two-year cadence," Moorhead said. "The internal message to engineering and procurement and marketing is that you have a deadline. The [next model] must be done, there is no option."

But Apple has options, ways to alleviate the pressure of constantly coming up with new designs.

"Change for change's sake is not necessarily a good thing," said Dawson. "Apple could say, 'We've arrived at a classic design, with a shape and sizes that make sense to a lot of people.'"

In Dawson's scenario, Apple would promote an unchanging exterior design -- and the three form factors it now offers -- but highlight the internal, performance-based improvements added every two years, or even every year. He ticked off such enhancements as an improved camera, a dual-lens camera, or the removal of the Home button to lengthen the display space.

And for those who buy the newest to strut just that fact -- the conspicuous-consumer pool of customers -- Apple could offer more colors, as it recently did with the pink (dubbed "rose gold" by Apple) iPhones.

"Apple has to keep moving to get people to keep paying the premium price," said Moorhead. "It's not wise to slow down your innovation as the market matures. It just creates a self-fulfilling prophecy. But it has to be innovation that motivates customers to upgrade."


Copyright © 2016 IDG Communications, Inc.

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