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Apple: The Potential 5G Flop

Last week, discussed how investors in technology giant Apple (AAPL) may want to temper expectations for iPhone sales moving forward as price hikes may hurt unit sales. As newer phones become more expensive than their previous generation counterparts, it also means that the discounted older phones still being sold start at higher prices. Unfortunately, one Apple analyst recently discussed the 2020 iPhone lineup (potential images below), and his current thoughts may provide another reason for disappointment.

Ming-Chi Kuo, perhaps the most prominent Apple analyst when it comes to future product predictions, discussed the 2020 crop of iPhones. All three phones are expected to have OLED screens, meaning the current LCD screen type on the iPhone XR will finally be gone. That device, which is said to be the “entry-level” one, will still feature a 6.1 inch display. However, the other two premium phones could see displays of 5.4 inches and 6.7 inches, compared to the XS and XS Max at 5.8 and 6.5, respectively.

The biggest issue that Kuo details in my opinion, however, is that he only believes the two premium devices will be 5G compatible. The 6.1 inch entry level model won’t get that functionality until 2021. There are already consumers unhappy that Apple won’t have a 5G phone out this year, as some competitors do, so pushing things out another year seems like a major problem here.

Now I could certainly understand if Apple was launching a budget level device, like a potential second generation of the iPhone SE model that I’ve discussed for a while, and it was looking to save some costs to keep the phone price down. However, that’s not what Kuo is really saying here, as he’s talking about one of Apple’s three primarily launch phones. Take a look at the graphic below for why this is so important.

According to this data, the iPhone XR represented nearly 40% of the phone’s sales mix in the March quarter in the US, and around two-thirds of the mix of the 2018 launch generation (XR, XS, XS Max). Thus, Kuo is saying that Apple’s most popular phone by unit sales won’t have the biggest technology upgrade consumers are waiting for from the company, at a time where some already think Apple is a year behind.

Adding in the lack of 5G to the potential for higher prices, and this could be a big headwind for unit sales of the iPhone next year. Especially at a time when Apple starts to push its variety of new services, consumers are going to want a better network, and 5G will provide just that. If some of Apple’s new services don’t get off to a promising start in terms of subscriber counts, it won’t help in 2020 that it would be launching a phone that’s lacking in functionality that consumers need to better use those services.

On Monday, another analyst lowered his iPhone shipment outlook for the remainder of this year, while also slightly trimming his numbers for the next two years. If Ming-Chi Kuo is correct in his predictions, we may see more analysts doing the same for late 2020 and early 2021, as a potential 5G-less iPhone XR type phone next year would be a big disappointment. In the end, I’m not trying to be an Apple bear, but rumors like this bring down the potential for revenue and earnings upside in the next few years, which obviously would be a negative for shareholders. Not having 5G in 2020 in its most popular sales product could be a potentially large flop for Apple.―Seeking Alpha


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