Why the Next Big Change for iPhones Will Be Bigger iPhones

Apple iPhone 5s
AP
The Wall Street Journal reported recently that Apple (AAPL) will roll out not one but two iPhone models with bigger screens later this year. Considering Monday's disappointing quarterly report, it looks like the consumer tech giant needs them.

The market was surprised to learn that Apple sold just 51 million iPhones during the period. That was a new quarterly record -- up nearly 7 percent since the prior year's holiday quarter -- but analysts had been holding out for more.

Last year's rollout of the iPhone 5s and the iPhone 5c was supposed to give Apple an even more dramatic boost in smartphone sales. The iPhone 5s with its fingerprint identity sensor and superior camera raised the bar, and the burst of colors made available on the $100 cheaper iPhone 5c looked to have broad appeal. With two new ways to hook potential buyers, analysts expected as many as 56 million iPhones to be shipped during the quarter. It didn't happen.

Bigger Is Better

The Journal's source claims that Apple is working on a phone with a 4.5-inch screen and one with a 5-inch display. The smaller iPhone is further along in development, but both should be ready to hit the retail market later this year.

It may not seem like much of a difference, but anyone doing a side-by-side comparison of the iPhone 5s with its 4-inch screen and the Samsung Galaxy S4 with its 5-inch display -- or with some of the even larger Android "phablets" and phones on the market -- will appreciate why Apple needs to keep up. An iPhone isn't cheap, and Apple can't justify the price when it's attached to a form that is so 2010.

Screen size isn't the only reason why Android smartphones are growing in popularity at a faster pace than iPhones. Android devices come in a wide variety of configurations and prices. However, it's clear that a bigger iPhone can only help at this point.

Apple's moves to differentiate its devices from the competition are getting harder to accomplish over time, and consumers are starting to associate larger screens as a premium perk that the iPhone presently does not offer.

Paying Up for the 5s

The silver lining in the otherwise disappointing iPhone sales data is that folks did favor the costlier iPhone 5s by a wide margin over the iPhone 5c. Saving $100 wasn't worth it for consumers if it meant getting a plastic shell and inferior specs.

Apple doesn't break down sales by model, but dividing the iPhone revenue by the number of units sold shows Apple's first increase in average selling price in a year. This can only mean that folks bypassed the iPhone 5c in favor of the more expensive iPhone 5s.

In theory, the relative failure of the colorful iPhone 5c is a disappointment. It just wasn't cheap enough to capture the entry-level market that Apple was hoping to bite into. However, the number of consumers gravitating to the iPhone 5s suggests that Apple's still the device of choice for well-to-do smartphone buyers. That makes going bigger with its next generation of iPhones that much more important to make sure that it doesn't use the affluent and upper middle class that can afford the subsidized iPhone 5s and the costly data plans.

If the Journal's story bears out, one would expect to see the iPhone 5c replaced by the 4.5-inch model and that the iPhone 5s will receive the 5-inch diagonal display. They'll cost a little more to make, but Apple should make that back with a boost in sales.

Right now, it doesn't have much of a choice. Sales of iPhones are growing, but not as quickly as the smartphone market itself. Apple needs to make big things happen, and bigger screens are a smart place to start.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our newsletter services free for 30 days.

Learn about investing from the comfort of your own home.

Portfolio Basics

Take the first steps to building your portfolio.

View Course »

Investment Strategies

Learn the strategies you need to build a winning portfolio

View Course »

Add a Comment

*0 / 3000 Character Maximum

14 Comments

Filter by:
trgep

size does matter, just ask your girlfriend

January 30 2014 at 1:00 PM Report abuse -1 rate up rate down Reply
schyrl43

Just use the iPad Mini as a phone. It already has Facetime. Personally, I guess I'll just be using old phones. I don't want to hold a brick up to my ear. :/

January 30 2014 at 12:55 PM Report abuse +1 rate up rate down Reply
Charles

Maybe it's my age, but for the life of me I can't understand why anyone would want to watch a movie or tv show on a cell phone screen, while flat screens are getting bigger and bigger, people still are hung up on the little screen.

January 30 2014 at 12:34 PM Report abuse +1 rate up rate down Reply
yeldirj

Most people are stuck in carrier contracts. I'm eleven months out on getting an upgrade. Why would I fork out the full amount for an iPhone when I'll get it at a discounted price in a few months? This is why your sales are low. We're all under contract.

January 30 2014 at 12:32 PM Report abuse rate up rate down Reply
fakeconomics1

I am looking for dial phones -- I badly miss them. I rather be analog and be anonymous than exposing to the world.

January 29 2014 at 9:15 PM Report abuse +4 rate up rate down Reply
1 reply to fakeconomics1's comment
Richard

Thery are available online. I had a French phone analog for many years when I remodeled my home and recently found out you can buy them at antique shops or thru a catalog online.

January 30 2014 at 1:48 PM Report abuse rate up rate down Reply
HAT1701D

Pretty soon people will simply be putting their tablets up to their ears.................

January 29 2014 at 7:18 PM Report abuse +1 rate up rate down Reply
1 reply to HAT1701D's comment
jabaileydc

Why not? They used to walk the streets with boom boxes on their shoulders to their ears! Seems like we're going in the wrong direction in regard to "size" with technology.

January 30 2014 at 12:33 PM Report abuse rate up rate down Reply
Big Daddy

I will only buy another Iphone with a larger screen

January 29 2014 at 6:55 PM Report abuse +1 rate up rate down Reply
Dean

I can careless about the size of the screen. I have a tablet.Make an innovative phone.

January 29 2014 at 6:34 PM Report abuse rate up rate down Reply
alfredschrader

Unlike photons and electrons, gravitons pass right through solid objects. A cell phone transmitting and receiving gravitons will work in caves and inside fortresses.
Currently I lead the world in graviton technology.

January 29 2014 at 5:25 PM Report abuse rate up rate down Reply
mld780

I am about to purchase my first smart phone. And I favor the iphone right now. When you do predict prices to drop on either the 4 or the 5? In other words, when will the larger iPhone become available to consumers?

January 29 2014 at 4:20 PM Report abuse rate up rate down Reply