Apple, Inc.'s Design Cycles Might Be Getting Longer

By Markets Fool.com

Image source: Apple.

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Ever since 2009, Apple's iPhone product cycles have been on a predictable cadence. Every other year, the company redesigns the device and introduces a new industrial design. In between every other year, Apple introduces more incremental features or spec bumps within the same overall chassis. It's essentially as if Apple adoptedIntel's famous "tick-tock" strategy, where the chip giant would move to a smaller manufacturing node every other year, while improving performance in between.

It looks like Apple's design cycles might get a little bit longer, though.

From two to three

The Nikkei is exclusively reporting that Apple is looking to shift its two-year design cycles to three-year design cycles. The theory is supported by production schedules that Apple has provided to suppliers, forecasting lower unit volumes for 2016 compared to 2015, which is corresponds to Apple's first-ever iPhone unit decline that the company just reported. Apple sold 231.5 million iPhones in 2015.

Meanwhile, most of the iPhone 7 supply leaks that we've been seeing do indeed suggest that the forthcoming device will be very similar to the current iPhone 6s in terms of its physical design. The iPhone 7 is expected to keep a similar overall shape while tweaking the antenna lines and making the handset negligibly thinner.

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In terms of new features, there's been talk of Apple ditching the headphone jack, adding better waterproofing capabilities, and an improved dual-lens camera system.

Peak smartphone confirmed

Meanwhile, there's also been a lot of discussion about whether or not we've reached "peak smartphone," since the product category has matured so much that there's less innovative potential that hasn't already been realized. As a product category, there aren't really many bad phones out there these days, irrespective of brand.

The same can also be said about the broader market in terms of unit volumes, as well. Upgrade activity is driven largely as a function of new features and performance improvements, so it goes to reason that as less meaningful new features are introduced each year, upgrade activity could also slow. That could serve as a counter-force to the installment, leasing, and early upgrade programs that carriers have introduced in recent years, which have had the net effect of shortening upgrade cycles.

Farewell, tick-tock

From a resource allocation standpoint, it also makes sense for Apple to be focusing its efforts on new areas as well. As smartphones mature, elongating the design cycles streamlines R&D resources. Think about laptops, which are a very mature (but still important) category. Apple typically redesigns MacBooks every four to five years.

And yet, Apple's overall R&D expenditures continue to rise at a remarkable pace, currently approaching $10 billion over the past four quarters. It seems unlikely that most of those rising costs are going toward the iPhone, but rather toward areas like an Apple Car.

Interestingly enough, Intel also recently officially killed the tick-tock strategy. However, a question remains: What do we call the new strategy? Tick-tock...tack?

The article Apple, Inc.'s Design Cycles Might Be Getting Longer originally appeared on Fool.com.

Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.