Apple (NASDAQ: AAPL) is expected to launch three new iPhones later this year: a successor to the current iPhone 8 and iPhone 8 Plus (a device that I believe will simply be called "iPhone"); a successor to the current iPhone X; and a larger-screen version of the successor to the iPhone X, which I'll refer to as the iPhone X Plus.
All three new iPhone models are expected to support gigabit LTE speeds, enabled by Intel's (NASDAQ: INTC) new XMM 7560 modem. Apple's latest iPhone models support peak download speeds of 600 megabits per second, so the jump -- at least on paper -- should be quite significant.
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Next year, many smartphone vendors are expected to introduce smartphones with support for the wireless standard that succeeds 4G LTE, known as 5G. Indeed, wireless chip specialist Qualcomm (NASDAQ: QCOM) recently announced a list of partners that intend to sell smartphones powered by its upcoming Snapdragon X50 5G modem.
There is some speculation that Apple may be late to offer iPhones with 5G connections, something that wouldn't be without historical precedent. Apple was also late in offering 4G LTE-capable smartphones, though it's worth noting that its ability to invest in new technologies has grown by leaps and bounds over the last seven years.
However, I think that there's a good chance that Apple will offer 5G-capable iPhone models in the second half of 2019, especially as it faces the risk of falling behind the competition if it doesn't. Here's how I expect Apple to do it.
5G for the iPhone X line, LTE for the standard iPhone
I think that for the 2019 iPhone lineup, Apple will continue to segment its devices based on price. At the high end, I expect direct successors to what I think will be this year's iPhone X and iPhone X Plus. For the mainstream, it seems reasonable to bet on Apple introducing a cost-optimized successor to what I'm calling simply the iPhone.
I believe the standard iPhone won't come with a 5G modem and will instead -- to save on costs and drive effective product segmentation -- use an upgraded LTE modem from Intel, the XMM 7660.
The successors to the iPhone X, however, could come with 5G modems. Apple could use a solution from Qualcomm, or Intel's upcoming XMM 8060 5G modem (which Intel says will "ship in commercial consumer devices in mid-2019"). Perhaps Apple could even sell some with Intel modems and others with Qualcomm modems, as it does with the iPhone 7-series, iPhone 8-series, and iPhone X smartphones.
From a risk-management perspective, it might be smart for Apple to use multiple modem suppliers in the early innings of the 5G transition, in case one fails to deliver.
Not only would limiting 5G capability to the more expensive models make sense from a financial perspective -- cheaper devices get less sophisticated cellular subsystems while more expensive devices get more advanced ones -- but it would also be helpful from a product segmentation perspective.
Apple will want to find ways to drive iPhone average selling prices as high as possible, to drive revenue growth in a stagnant smartphone market. By limiting 5G capabilities to its most expensive devices, the company would be giving customers a reason to buy higher-end smartphones.
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Ashraf Eassa owns shares of Intel and Qualcomm. The Motley Fool owns shares of and recommends Apple. The Motley Fool owns shares of Qualcomm and has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.