How Apple Inc. can justify a $1,200 iPhone X in 2018

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Next year, Apple (NASDAQ: AAPL) is expected to launch three new flagship iPhones. The lowest end of the bunch is expected to be a version with a six-inch liquid crystal display (LCD), while the mid-range one should be a direct successor to this year's iPhone X, with a 5.85-inch organic light-emitting diode (OLED) display. The highest-end model is expected to come with a gargantum 6.46-inch OLED display. 

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If Apple retains the same pricing for next year's 5.85-inch iPhone X as that of this year's iPhone X models -- $999 for the model with the baseline 64GB storage and $1,149 for the one with upgraded storage -- then this would mean that the baseline 6.46-inch iPhone X would have to start somewhere north of $999.

It's $100 extra for the baseline iPhone 8 Plus over the baseline iPhone 8, but I suspect that the manufacturing cost increase between the future 5.85-inch iPhone X and the future 6.46-inch iPhone X will be so high that Apple will want to charge something along the lines of a $200 premium for the larger device.

And I think that Apple will be able to pull it off. Here's how.

Pair the bigger screen with a superior camera

I don't think Apple would be doing itself any favors by building a larger-screen iPhone X that's just a bigger-screen iPhone X. Apple's goal should be to try to compel users to buy higher-priced iPhones, and one way to do that is to include exclusive -- and compelling -- features in the large-screen model.

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You may recall that the key feature that differentiated the iPhone 7 Plus from the standard iPhone 7 was the inclusion of a dual-lens camera system. The second lens allowed for features like portrait mode and true optical zoom -- features that the iPhone 7 with its single-lens camera lacked.

During the iPhone 7 cycle, Apple saw an unexpected product mix shift toward the iPhone 7 Plus, almost certainly due to the enhanced camera capability of the iPhone 7 Plus relative to the iPhone 7.

It makes sense, then, that if Apple wants to push customers to buy a 6.46-inch iPhone X, it should differentiate the device with a superior camera subsystem to that found on the 5.85-inch iPhone X.

There are several avenues that Apple could pursue to try to differentiate the cameras on the larger iPhone X compared to the smaller one. Obvious examples include higher resolution sensors, larger sensors with bigger pixels to improve image quality, more advanced optics (for example, the iPhone X's telephoto lens has a wider aperture than the iPhone 8 Plus's), and potentially even 3D sensing capabilities on the rear camera (Apple's current iPhone X only has 3D sensing in the front-facing camera). 

 

 

Beyond the camera

Other than the camera subsystem, Apple could differentiate a hypothetical large-screen iPhone X with, say, more system memory (though memory isn't a good selling point -- it must be used to enable functionality that wouldn't be possible otherwise), bigger storage options, or possibly go down to the chip level and offer owners of the higher-priced device additional performance.

Any one of these technologies in isolation probably wouldn't be enough to convince customers to buy a premium-priced larger-screen iPhone X, especially if those customers simply find the smaller-screen iPhone X more comfortable to use. But a combination of multiple technology enhancements that ultimately translate into a much better user experience could do the trick. 

Indeed, considering how important the iPhone business is to Apple's overall financial results, and considering that the smartphone market has seen a marked slowdown in unit shipment growth in recent years, Apple's best bet is to try to extract as much value from each iPhone sale that it does make. Offering higher-priced models with features that compel customers to pay more could be a critical enabler of iPhone growth in the years ahead. 

 

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