A Tale Of Two iPhones

A new iPhone is approaching — this, everyone knows. While WWDC came and went without an announcement, this was expected. Instead, this year it will be all about the fall — with new hardware hitting just in time for the formal launch of iOS 5. But what exactly will the new hardware be? An “iPhone 5” or an “iPhone 4S”? Or, better yet, both?

That’s the latest rumor making headlines today, based on a report by Deutsche Bank’s Chris Whitmore, an analyst. Now, analysts typically have a horrible track record when it comes to correctly predicting Apple moves. And when I say “horrible”, I mean that you’d have a better shot correctly predicting what Apple is going to do by throwing darts at a board… with a blindfold on. But — there has been some evidence that backs up this latest claim (which is probably why they made it in the first place).

First of all, reports of Apple working on a cheaper version of the iPhone have been circulating for months now. And these reports have been by journalists, not analysts. In fact, a few months ago, we had heard the same thing. Sources had Apple working on a new version of their hardware that was significantly cheaper to build, thus allowing them to lower the price — likely so that they could sell the device unlocked or pre-paid, at a reasonable price.

It has been a few months since we’ve heard anything about this, but again, there are other reports and reasons to believe that may be the case. The biggest of these may be the very words Apple COO Tim Cook said to Bernstein’s Toni Sacconaghi earlier this year. Cook said that Apple did not intend their products to be “just for the rich” and when pressed, further elaborated on the iPhone opportunity. Cook stated that Apple was well aware that price was the key component in the pre-paid market and that Apple was not “ceding any market”.

Reading between the lines, many immediately began to assume that Apple was indeed working on a cheaper phone to enter the pre-paid market. The market opportunity there is massive in countries outside of the U.S. and Canada. Africa, Asia-Pacific, Latin America, and even Europe rely more on pre-paid than the carrier-subsidized phones we’re used to in the U.S.

Fast forward to a couple weeks ago, Apple began selling unlocked iPhones for the first time in the U.S. Many (including myself) wondered why this makes any sense — it turns a $200 device into a $650 one that you have to use on AT&T anyway in order to get full capabilities (using a GSM iPhone on T-Mobile works with EDGE speeds only — there is no CDMA unlocked version). But the key here is overseas. Meaning both travelers going overseas who want an easy way to pop in a SIM for whatever country they’re in — and people sending the devices to family members overseas.

Still, $650 is too steep for this to truly be a huge market for Apple. But it shows Apple is now increasingly open to the idea of selling unlocked devices (they’ve had to in other countries for some time by law). And if Apple was able to shave a few hundred dollars off of the steep price (perhaps down to $350 or less), it could be a new goldmine. That’s likely what this “iPhone 4S” is all about.

That name, of course, is derived from the “iPhone 3GS”, which Apple introduced in 2009. Instead of following up the iPhone 3G with an iPhone 4, Apple opted to do a more evolutionary upgrade that saw a major speed boost and the addition of video but not much else new that a customers could actually see. Even the form factor stayed the same. If Apple is doing a cheaper version of the iPhone, some think that an old iPhone body (maybe the iPhone 4, slightly modified) would be used. The internals would undoubtedly be tweaked to make the device cheaper to manufacture.

But a few of the reports about the cheaper iPhone (including ours) noted that a cheaper iPhone may come with a completely new, smaller (or thinner) body. Think: less “iPhone nano” and more “iPhone lite”.

All of this makes an “iPhone 4S” label perhaps a bit unlikely. Would Apple really be able to give the device a speed boost over the iPhone 4 while driving down the price? If anything, it seems that a slightly less capable iPhone 4 may be likely for such a model.

Point being: I wouldn’t focus on the “iPhone 4S” name too much.

Instead, look for Apple to launch a true “iPhone 5” this fall, with the potential surprise of an “iPhone lite” (just me throwing out a name — no clue if that’s in any way what the device will actually be).

Last week, I wrote a post laying out a scenario in which the iPhone 5 launch this fall on both Verizon and AT&T overtakes (in terms of sales) the dozens of Android devices in the U.S. market across all the carriers. Jason and I then argued about this on OMG/JK, with him conceding my point that this could happen temporarily. Since that post, a half dozen other previously adamant Android believers have told me they plan to get the iPhone 5 this fall as well.

But what if that’s not even the big prize here for Apple? What if an iPhone lite opens their devices to hundreds of millions more potential users around the world? It would still have to make sense for Apple from a margin perspective. But the larger perspective is that it could further bolster the iOS ecosystem, which would ensure all their devices stay vital in the face of the Android threat.

And then there’s the even bigger picture. Apple doing considerable unlocked phone business will help them further distance themselves from a reliance on the carriers around the world. How about an iPhone with a carrier-crippling SIM? Sounds great.

Perhaps all of this is the “big fall surprise“? Or maybe it’s just a part. It was the best of times…