Thoughts from the iPhone Event

Sorry for the delay.

It was obvious from the amount of time given to iOS 5 and iCloud at the event that the new iPhone was going to be an upgraded iPhone 4. A newer device with a new form factor would have been given more show time at the event.

Tim Cook’s recap of Apple’s business operations was fine, he seemed at ease presenting the information. MoD wonders if he will be a presence on the earning calls coming up in two weeks. Steve’s absence was to be expected, and MoD doesn’t think it is reflective of any coming bad news related to his health condition. Health permitting something like the launch of the iPad 3/iPhone 5 might be his next Apple public appearance, but he will want to give Cook plenty of room to get established.

The presentations being done by the various EVPs were fine. Phil Schiller was a little over the top trying to drum up excitement for the new features of the iPhone 4S. But that task was kind of a tough sell. Once, it was clear that there was no iPhone 5, the specs on the iPhone 4 s had been well established.

Was this event disappointing? Personally,  Yes. I’m so ready for a bigger screen iPhone, so was the rest of the tech blogger community. For the average consumer who will be artfully walked through the new features by Apple’s marketing juggernaut, no. Something to consider, the iPad 2 event was so-so and featured basically a spec’ed up product, and that device has been selling in record numbers and shows no signs of stopping.

Would tech bloggers be complaining if this had launched in June as expected? If released in June with all the new features of iOS 5, MoD thinks the complaints would be minimal. Apple would have followed their expected timeline. The extra 4 months of waiting on the device raised rumors and expectations to an unrealistic level. In addition, part of the complaint that we are seeing is based on the fear that the iPhone 5 is at least 12 months away. That the iPhone 5 is not going to be released until October 2o12.

Is this a compelling upgrade for iPhone users? There’s a significant number of iPhone users who still have 3g and 3gs phones. This new iPhone 4s is going to a tremendous upgrade. For Verizon and Sprint customers, this is going to be their first new iPhone product, so folks dumping two year old Blackberrys and feature phones are going to think it’s great.

Who is really disappointed in the iPhone 4s release? If you bought a first generation Android phone and were looking to replace it with a big screen iPhone. And that population is going to be mostly the noisy tech elite who write most of the blogs. The top end Android and Win 7 phone devices this fall will have 4 inch screens, so the iPhone with a 3.5 inch screen is seen as a none starter by that population. These are also the same folks who want Apple to add more USB ports to the MacBook Air.

Why did Apple release an updated iPhone 4 and why did it take 16 months to do that? There are any number of potential conspiracy theories here. Here’s the MoD theory. MoD thinks Apple needed to delay the release of iOS 5 to get OS X Lion out the door. Apple does not have the QA resources to launch a desktop OS and mobile OS in the same quarter. This scheduled delay gave Apple time to consider what to do with their next iPhone release. Two avenues were co developed. A spec’ed up iPhone 4. A brand new big screen form factor. Each design would use the same internal stuff; 8 megapixel camera, A5 processor, Qualcomm world phone chipset. During this development window say March to June, Apple continued to receive sales feedback on the iPhone 4 from carriers with no sales slowdown at all. Some time this summer, prototype production runs of the bigger screen thinner iPhone 5 started seeing some quality issue   (a high percentage of a key component were not meeting Apple’s quality benchmarks), Apple’s suppliers were not going to be able to supply enough parts to make a launch viable. Apple had allegedly seen this kind of component quality issue before in trying to scale up iPad 2 production. Apple knew the last thing it needed this holiday season was a lack of iPhone hardware, whatever new iPhone being put into production needed a guarantee of large scale volume to meet unit demand. So, Apple shelved the big screen iPhone for now and focused all energies on the iPhone 4S with a relatively stable supply path.

What is the biggest overlooked elements of the launch? iOS 5 and iCloud. iOS 5 is all but ignored since tech bloggers have been using it since June. However for regular customers, it’s almost like getting a new iPhone it has that many features. And unlike Android’s new OS release Ice Cream Sandwich, it’s going to be available to the entire eligible installed base on October 12th. Airplay mirroring is the biggest hidden feature. It can potentially open a world of applications and games indirectly for the AppleTV. It’s like an SDK for AppleTV without all the work. iCloud is a pure catchup feature, but it’s a big one. A free email/calendar/contacts account from Apple for your iDevices and Macs. Apple rarely does anything for free, so that should tell you how important it is. It strikes at the heart of Google’s best free web apps. It also allows for stand alone iPhones and iPads which is a big improvement as well.

When will the iPhone 5 launch? If the iPad 3 with a retina display launches in February/March as expected, then WWDC 2012 should see the announcement of the new iPhone. Production issues with the new LCDs should be resolved and in addition the multi-protocol chipsets from Qualcomm should be available providing full support for the Verizon and AT&T (maybe Sprint as well) LTE networks. This new product will allow for the following price points;

  • iPhone 5 – $199   (16GB) ($630 without contract?)
  • iPhone 4S – $99  (16 GB)  ($499 without contract?)
  • iPhone 4 – free with contract (16 GB) ($399 without contract?)

And this strategy will allow Apple to keep building iPhone 4S in quantity while also starting production of the iPhone 5. Apple should be able to seamless ramp up a new production line while keeping existing production lines going. And pushing the iPhone 4 further down into more customer price segments. And it should also lead to the next question question/answer.

What about the cheaper pre paid iPhone? It seemed too soon for a cheaper iPhone 4. And it is, but by next summer Apple could have designed an iPhone 4 with only 8 GB of memory with slightly cheaper material cost and gotten that product down to $300/$350 while still maintaining an acceptable margin. Foxconn’s Brazilian factory could be ready in 6 months to begin production of such an iPhone for North America/South America/and Europe.

Is there a risk in pushing off upgrading the form factor of the hardware for possibly another 12 months? Yes. It’s a gamble that Nokia won’t flood the lower end market with big screens well equipped Win 7 Phones over the next 12 months. The next wave of Google Android phones using the new OS could close the gap between iOS and Android. The smartphone market is a fluid and volatile place with little certainty. Just ask RIM who while waiting on their next gen platform may see their US smartphone market share hit single digits.

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