Apple Targets the Future with iPhone X, But Hopes to Sell Millions of iPhone 8s Now

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Insight on Apple’s latest revealing of iPhone X and iPhone 8
iPhone x, iPhone 8

Apple has the best iPhone sales when a new model has a markedly different design. The iPhone X delivers a design unlike any other existing smartphone because the display is edge to edge on all four sides. The best the competition has achieved is on just three.

But Apple is hoping the later availability date for iPhone X will not affect iPhone 8 sales this quarter. Apple’s lower iPhone 8 pricing should limit the impact, but it remains a risk. iPhone X is the future of smartphone design, but it’s also available in the future too.

“While Apple risks losing iPhone 8 sales in advance of iPhone X availability, it is the right decision to announce iPhone X now, says Ian Fogg, senior director, mobile & telecom at IHS Markit. “Keeping it quiet until a second product launch this autumn would simply alienate iPhone 8 purchasers and damage Apple’s business in the long run. Apple has made the right decision for its customers. They have a clear choice: buy an iPhone 8 or 8 Plus now and enjoy Touch ID, wireless charging and improved performance – or wait and spend more on iPhone X in a month’s time.”

Apple’s iPhone has shifted consumer spending patterns

iPhone X is a premium priced smartphone which for the first time goes over the $1,000 for threshold for the top 256Gb model. It will still sell in enormous volumes because Apple has repeatedly demonstrated its ability to persuade consumers to shift their overall spending to place a greater share of their disposable income towards a smartphone purchase. And, the starting price of $999 is only $33 more than the previously most expensive iPhone, the 7 Plus 256GB.

Apple aims to make great products which are well-designed, with features which work perfectly as described, and as a result represent good value for the price. Apple has succeeded with all previous iPhone models leading to the highest average selling price (ASP) in the smartphone market. When the first iPhone went on sale in mid-2007 Apple had success with an ASP which was five times greater than the largest handset maker at the time (Nokia). Apple is the most successful smartphone maker because of its revenues, not its 1.2bn iPhone shipments over the last decade.

Ten years ago, then mobile handset market leader Nokia had an average selling price for its mobile handsets of just $113 (€82). In Q2, 2017 Apple’s ASP was $606, over five times Nokia’s ten years ago pre-iPhone. While other handset makers have also increased their ASP in the last decade, no one has been as successful as Apple: the current market leader by shipment volume, Samsung, has an ASP slightly over one third Apple’s.

AR and iOS 11 demonstrates benefits of Apple’s integrated business model

The new iPhones will benefit from the numerous improvements in iOS11. The tiny bezels of iPhone X will make AR apps more immersive than on other smartphones. The new cameras draw less power, which will help AR apps run for longer than they will on iPhone 7 models.

And, because of the tight integration of software and hardware, AR developers will know their AR experiences will run smoothly on all supported iOS devices. Apple will gain a significant time advantage over Google and Android-based OEMs where there are numerous camera designs in use, and AR support will take much longer to roll out across the Android installed base because the sluggishness of Android OEM software update cycles. As a result, Apple will have a long window to use AR experiences to market iPhone hardware and drive additional sales before Android catches up in late 2018.

Apple aims to deliver excellent 3D face scanning, drops Touch ID in iPhone X

Face unlocking and authentication is not a new feature. Google introduced a basic form with Android Ice Cream Sandwich in 2011 but it proved easy to defeat with a static photograph. More recently, Samsung offers facial unlock on its S8, S8+ and Note 8 but markets it as a convenient feature with a lower level of security than fingerprint authentication.

Apple is aiming higher to deliver a face authentication system suited to fully replace fingerprints in both speed and accuracy. This is a risk because no one has shipped such a design before.

Regardless, the TrueDepth camera will have wider uses which will help Apple cement a leadership position in the market. TrueDepth enables new Animoji which will appeal to iMessage users. As app developers experiment with the new sensors we will likely see innovative uses to create scan real world objects to create virtual models for use in AR apps, and many others. The sensor technology Apple is pioneering in iPhone X have the potential for wider uses In future, perhaps eventually beyond the smartphone in AR smart glasses.

Apple Watch adds LTE, but users will continue to have to leave their apps and camera behind

The Apple Watch Series 3 design is an impressive technical achievement because Apple has added 3G and LTE connectivity without increasing the size of the watch. All rival cellular smartwatch models are vastly larger than their non-cellular versions. The small watch battery will mean the cellular radio is for episodic usage and will not be sufficient to replace a smartphone permanently.

Apple’s decision to push ahead with LTE support in Apple Watch at this stage in the product’s evolution is uncharacteristic. Two of the main consumer pain points with Apple Watch are battery life – moving beyond charging once a day – and the lack of an always-on display. Instead of adding these features, Apple is choosing to add cellular. This will increase the appeal of Apple Watch to mobile operators, because it will drive LTE subscription sales and will act as a retention tool to hinder iPhone owners enjoying the combined Watch plus iPhone shared phone number from churning to another operator.

“The consumer appeal of LTE smartwatch support at this stage is uncertain,” added Fogg” The lack of a large display on a smartwatch means a smartwatch cannot yet replace a smartphone for many applications. Plus, key consumer apps such as WhatsApp, Facebook or Google Maps do not have native Apple Watch versions: leave the iPhone behind, and users leave behind almost of all their apps, even with cellular. Plus, they leave their main camera behind too.”

Most of the time, consumers will continue to carry an iPhone alongside a watch. Only when exercising can a smartwatch really be sufficient. Even then, the pressure on a smartwatch’s tiny battery means LTE smartwatches can last only a few hours as a true solo device. Against this backdrop, IHS Markit believes LTE connectivity will have niche appeal until both LTE watch battery life and native smartwatch app experiences improve significantly.

iPhone X is the future of smartphone design

IHS Markit expects demand will exceed supply for these new iPhone models because they represent the biggest step forward in iPhone design since the iPhone’s debut. iPhone X will set Apple up for exceptional iPhone performance in 2018 and into the iPhone’s second decade. And, just as with the original iPhone, every other smartphone maker will aim to copy and improve on Apple’s iPhone X design. In this, it is the true successor to the first iPhone.

Apple unveiled three new iPhone models: iPhone X, iPhone 8 and 8 Plus. Notable features include:

– A11 Bionic chipset, 2 performance cores, 4 for efficiency. New ISP for faster low light & hardware enabled multiband noise reduction; 3 core custom GPU design.

– Glass industrial design, for better antenna performance & Qi wireless charging.

– True tone display, display unchanged from iPhone 7s / 7s Plus.

– Portrait photo lighting effects

– Price from $699 for iPhone 8, ships September 22.

In addition, iPhone X includes:

–  Edge to edge 5.85” Flexible OLED display 458ppi with 2436×1125 pixels  , special aspect ratio as 19.5:9. Flexible OLED with On-Cell touch sensor Dolby Vision and HDR10.

– Face ID: uses custom “TrueDepth” camera: flood illuminator, proximity, infrared, dot projector, front camera, ambient light sensor.

– Adds portrait mode selfies & animoji

– Dual 12MP f1.8 and f2.4, with dual OIS.

– Price from $999, ships November 3.

Apple Watch Series 3

  • Adds barometric altimeter, improved W2 WiFi chip, 3G & LTE cellular option with eSIM, 18 hour “all day” battery life. From $329 or $399 for cellular version.
  • Cellular version is almost identical size to non-cellular version.
  • Now supports Apple Music streaming service natively.
  • Launch operators are: AT&T; Sprint; T-Mobile US; Verizon; Bell; Telus; China Unicom; Au; DoCoMo; SoftBank; EE; Deutsche Telekom; Orange France.

Apple also unveiled a new Apple TV 4K, includes HDR support, positioned above existing model with a starting price of $179.

(Written by Ian Fogg, senior director, mobile & telecom, IHS Markit)

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