Did Apple Inc. Make a Huge Mistake in 2017?
In 2017, Apple (NASDAQ: AAPL) introduced three new smartphones: iPhone 8, iPhone 8 Plus, and iPhone X. The iPhone 8 and iPhone 8 Plus share the same form factor and display as their respective predecessors, iPhone 7 and iPhone 7 Plus, but they include a host of internal technology updates, camera improvements, and even a chassis material change.
Image source: Apple.
The iPhone X, on the other hand, was a huge step forward. In addition to cutting-edge internal specs, Apple adopted an all-new stainless-steel and glass body, added a 3D depth-sensing camera (called a TrueDepth camera), and adopted a new organic light-emitting diode (OLED)-based display with an all-new 19.5-by-9 aspect ratio, which is taller than the 16-by-9 aspect ratios of the iPhone 8/8 Plus displays.
It might seem strange that Apple didn't adopt new 19.5-by-9 aspect ratio liquid crystal displays (LCDs) for the more mainstream iPhone 8/8 Plus -- it even may have hurt the competitiveness of the devices in the marketplace -- but there are a few really good reasons why Apple didn't do so.
Cost considerations
Apple appears to be using the same basic display panels in the iPhone 8 and iPhone 8 Plus that were used in the iPhone 7 and iPhone 7 Plus. The reality is that the longer a component -- or in the case of a display module, set of components -- is in production, the lower the costs go over time. Had Apple introduced all-new, thin-bezel and tall aspect ratio displays for the iPhone 8 and iPhone 8 Plus, it would've likely incurred a significant increase in display cost structure.
Image source: Apple.
Since the iPhone 8 and iPhone 8 Plus were already slated to see significant cost-structure increases in other areas -- e.g. glass back, addition of ambient light sensor for True Tone display functionality, more expensive applications processor, and so on -- Apple probably wanted to keep the cost structures of these devices in check.
Software considerations
The reality is that it's going to take time for iOS developers to rework their applications to look correct on the display on the iPhone X. Some customers -- in fact, based on the reports of iPhone X sales, a lot of customers -- are willing to deal with any potential teething pains with respect to app compatibility with the iPhone X.
However, some customers are probably interested in waiting a year or two for most of the apps in the Apple App Store to be reworked to take advantage of the iPhone X's taller aspect ratio and "notch" at the top of the device. The iPhone 8 and iPhone 8 Plus offer such customers the option to get cutting-edge technologies in a more familiar form factor and with a widely supported display-aspect ratio.
Upsell opportunity
The only way to get a phone that's as sleek as the iPhone X -- at least from Apple, anyway -- is to buy the iPhone X. Apple probably believed, and quite rightfully so, that by introducing the radical form factor and display aspect-ratio change with the premium-priced iPhone X, it could get some customers to buy more expensive iPhones than they otherwise would have.
In other words, by making the iPhone X look much more modern than either the iPhone 8 or the iPhone 8 Plus, Apple's hoping that people will forgo the iPhone 8 and iPhone 8 Plus in favor of the iPhone X.
Such a move is risky -- Apple needs to encourage upsell within its iPhone product stack, but at the same time, it needs to minimize the risk of potential smartphone customers simply opting for smartphones from other vendors altogether.
Nevertheless, this is the path that Apple has opted for, and so far, it looks like the strategy is set to pay off. Apple guided to record revenue for the current quarter about a month ago, and that growth is undoubtedly a result of positive customer reception of the iPhone 8, iPhone 8 Plus, and iPhone X, in aggregate.
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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.
