By Bloomberg
February 26, 2018

Apple Inc. is preparing to release a trio of new smartphones later this year: the largest iPhone ever, an upgraded handset the same size as the current iPhone X and a less expensive model with some of the flagship phone’s key features.

With the new lineup, Apple wants to appeal to the growing number of consumers who crave the multitasking attributes of so-called phablets while also catering to those looking for a more affordable version of the iPhone X, according to people familiar with the products.

Apple, which is already running production tests with suppliers, is expected to announce the new phones this fall. The plans could still change, say the people, who requested anonymity to discuss internal planning.

Despite months of breathless hype, the iPhone X hasn’t sold as well as expected since its debut last year. Apple sold 77.3 million iPhones in the final quarter of 2017, below analysts’ projections of 80.2 million units. Some consumers were turned off by the iPhone X’s $1,000 price despite liking the design even as they wanted something more cutting-edge than the cheaper iPhone 8. With its next lineup, Apple is seeking to rekindle sales by offering a model for everyone.

“This is a big deal,” says Gene Munster, a co-founder of Loup Ventures and a long-time Apple watcher. “When you have a measurable upgrade in screen size, people go to update their phone in droves. We saw that with the iPhone 6, and we think this is setting up to be a similar step up in growth.”

Munster predicts a supercycle — which he defines as upgrades by 10 percent or more of Apple’s existing iPhone customers. “The market that will see the biggest jump in sales is likely Asia,” he says. “That market has many single-device consumers, and they love big phones.”

An Apple spokeswoman declined to comment. The shares gained 2.1 percent to $179.18 at 2:16 p.m. in New York.

With a screen close to 6.5 inches, Apple’s big new handset will be one of the largest mainstream smartphones on the market. While the body of the phone will be about the same size as the iPhone 8 Plus, the screen will be about an inch larger thanks to the edge-to-edge design used in the iPhone X. (Apple is unlikely to refer to the phone as a phablet, a term popularized by Samsung.)

The larger screen should especially appeal to business users, letting them write emails and manage spreadsheets on a screen about as big as a small tablet. Like the iPhone 8 Plus, the new handset will probably enable split-screen modes for certain apps. Still, the larger phone could cannibalize iPad sales, a category that recently started growing again.

The big phone is code named D33, a person familiar with its development says, and at least some prototypes include a screen resolution of 1242 x 2688. That would make the screen about as sharp as the one on the 5.8-inch iPhone X. Apple also plans to use OLED technology, the same, more expensive type of screen in the regular iPhone X.

Like the iPhone X, the larger model will include a Face ID scanner that unlocks the device and enables payments. Apple is also preparing an update to the regular-sized iPhone X that is internally dubbed D32, people familiar with the product said. Both of these phones are expected to use next-generation A12 processors and will continue to include stainless steel edges, they say, and will be Apple’s high-end smartphone offerings.

Apple is considering a gold color option for the update to the iPhone X and the larger model. The company tried to develop gold for the current X handset, but abandoned it because of production problems. All new iPhones since the 5s came in gold, including the iPhone 8. The gold option is especially appealing to consumers in Asia and may help boost sales in the region. Still, Apple may ultimately decide not to proceed with the color.

In at least some regions, Apple is considering offering a dual-SIM card option for the larger model. That would let people use their phones in countries with different carrier plans without having to swap out cards. Such a feature has been growing in importance and popularity, especially in Europe and Asia where business people routinely visit multiple countries.

Apple hasn’t made a final decision on including the feature and could choose to wait for E-SIM technology, which will connect phones to multiple networks without the need for a removable chip. Apple has wanted to offer E-SIM technology (it already exists in the iPad and Apple Watch), but some carriers are resistant to including it in iPhones, and Apple needs their support. A dual-SIM capability would provide a compromise.

The phones will have an updated operating system, probably called iOS 12 and code named Peace, which will include upgraded augmented reality capabilities, deeper integration of the Siri digital assistant, digital health monitoring and the ability to use Animojis in FaceTime.

Apple’s decision to also build a cheaper phone is an acknowledgment that the current entry-level 8 models too closely resemble the iPhone 6 introduced back in 2014. With their thick bezels and lack of edge-to-edge screens, they seem dated next to the iPhone X and the latest Samsung devices. The new lower-cost model will feature the same edge-to-edge screen as the iPhone X as well as Face ID instead of a fingerprint sensor.

“It’s good that they’re rounding out the product line” with a less expensive phone, Munster says. But he doesn’t think it will have a measurable impact on demand because many consumers will want the bigger model.

To keep costs down, the cheaper phone will use LCD screen technology similar to the type employed in the iPhone 8. It will also have aluminum edges and a glass back like the iPhone 8, not the flashier stainless steel used in the iPhone X.

Apple has tried selling cheaper phones in the past with poor results. In 2013, the company debuted the iPhone 5c, which had a polycarbonate body and came in various colors. Consumers quickly discovered that for a mere $100 more they could buy a 5s, which had an aluminum body, a slow-motion video camera and a fingerprint scanner. Apple soon discontinued the 5c.

This time, the company is trying something different: using a cheaper body but including the features — Face ID and an edge-to-edge screen — that consumers most prize.

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