Here's Why Apple Doesn't Need a "Major Spec Upgrade" for 2018 iPhones

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KGI Securities analyst Ming-Chi Kuo said in a research note disseminated by 9to5Mac that investor sentiment around Apple's (NASDAQ: AAPL) 2018 iPhone lineup is "conservative due to concerns about a lack of major spec upgrades."

Of course, the next-generation iPhones will feature improvements in the areas that are typically seen in new iPhones, like the processor and the camera. However, what I think Kuo is talking about here are things like all-new features (e.g. 3D sensing camera, dual-lens camera, and so on).

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While investors are probably right not to expect any such major feature additions/changes in the next-generation iPhones, I don't think that this is any reason to be pessimistic about the sales performance of the upcoming iPhone models.

Form factor matters

The current iPhone X comes in only a single display size -- 5.85 inches measured along the diagonal. The nice thing about this size is that it allows the iPhone X to have the physical footprint of an iPhone 8 but a display that has nearly the area of the display on the iPhone 8 Plus.

Unfortunately, the iPhone X didn't come with the software interface features that have typically been exclusive to Apple's Plus models, like split-screen capability in certain apps as well as some unique keys on the virtual keyboard (see this article for more).

There are likely many individuals out there who are holding off for a true "Plus" version of the iPhone X, and once Apple finally delivers such a product with the 2018 iPhone lineup (it's rumored to have a display that measures roughly 6.5 inches along the diagonal), many owners of iPhone Plus models (iPhone 6 Plus, iPhone 6s Plus, iPhone 7 Plus, and even the current iPhone 8 Plus) will finally upgrade.

On top of that, Apple is expected to introduce an iPhone with a 6.1-inch liquid crystal display (LCD). LCD technology is cheaper than the OLED technology that's used in the current iPhone X. The use of an LCD, coupled with some other cost reduction measures, should allow Apple to deliver nearly the same experience that the next-generation iPhone X does at a more affordable price point.

Indeed, I think that a 6.1-inch LCD iPhone with 3D sensing capability, very slim bezels, the latest internals, and an aluminum frame -- even if it lacks 3D Touch capability, as rumored -- will be a more compelling option to most consumers than either the current iPhone 8 or the iPhone 8 Plus is today.

With the addition of a larger version of the iPhone X to the lineup, as well as a device that brings the goodness of the iPhone X to a more affordable price point, Apple's 2018 iPhone lineup seems to be much more compelling than its 2017 lineup.

Big upgrades need to come in 2019

Apple will almost certainly need to bring out more significant updates for its 2019 iPhone lineup since there likely won't be much the company can do to differentiate its 2019 iPhones from its 2018 ones in terms of form factor.

There are rumors that the company intends to add 3D sensing capabilities to the rear-facing cameras of the 2019 iPhones, which could prove to be an interesting selling point if app developers can easily take advantage of the capability.

However, I do think Apple will have a harder time improving its 2019 iPhone models compared to the 2018 models without some big upgrades that the average consumer appreciates and would be willing to pay for.

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Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

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