Business

An Apple Bloodbath

On Tuesday, Apple will unveil the new version of the iPhone and may even unveil a number of new versions but lost in the shuffle of new product announcements could be the fact that the company is going through the most significant set of product updates on the iOS line in a very long time. Let’s look at why I predict a complete line refresh this week.

Simply supplies

Over the last few years, Apple’s supply lines have evolved substantially, increasingly spreading across a variety of connectors, processors, and screen sizes. Take a close look and there are no less than 6 iPod variations, 5 iphone ones, and 16 iPad models to choose from (and that’s even before one considers the different color options.)

With 27 iOS powered products (not including Apple TV) on the market, Apple now supports supplies for at least 4 different computer chips (A4, A5, A6, and A6x), at least 3 different types of connectors (lightning, 30 pins, and shuffle), 4 different camera processors, and 7 different types of screens across 5 different dimensions.

Let’s assume that you’re a supply chain expert and think about how you’re going to increase margins on all your product lines: the primary way to do so is to reuse as many components as possible across all your product, a move that gives you greater leverage when making large scale purchases. You know you cannot do much about the form factor of many of your products but there’s a lot you can do inside them.

So the first thing you might look at is the processors, which are often one of the most expensive components in your bill of materials. Out goes anything powered by an A4 processor.

But can you do something even more radical when it comes to processors? For example, you could look at moving your A5 processors out, by upgrading everything to at least an A6 chip.

Then you look at your connectors: You’ve made a bet on a new proprietary approach and most of the vendors of accessories have adapted over the last year. So you say goodbye to anything without a lighting connector.

Your camera processors are also an area where you can get much leverage, especially if you tell consumers that you’re upgrading everything to the better quality ones.

A better resolution?

Having simplified the product lines by retiring some older products, you are now left with a challenge on resolution. Your screens range from the 3.5 retina display of the iPhone 4 to the 9.7 inch one of the iPad Retina. Resolutions across iOS devices force developers to ensure that their graphics must look good on the following resolutions:

  • iPhone 4 and 4th Generation iPod Touch: 960 by 640, 326  pixels per inch (ppi)
  • iPhone 5 and 5th Generation iPod Touch: 1136 by 640, 326 ppi
  • iPad mini: 1024 by 768, 163 ppi
  • iPad 2: 1024 by 768, 132 ppi
  • iPad Retina display: 2048 by 1536, 264 ppi

So this means that developers today worry about 5 different resolutions to make their app look good on iOS. A new set of product offerings can help reduce that diversity to only two different resolutions (or 3 at most) through judicious excising of certain products. Not only will parts be cheaper (as bought in bulk) but the move will make developers much happier as testing cycles will decrease.

The walking dead

Of course, there is always the argument that older products are due to be retired. There has been much complaint about Apple’s aging product line and here comes the opportunity for a substantial refresh, the kind that will touch most of the products the company offers.

So having taken all of the above in mind, it looks like Apple is preparing for one of the biggest refresh in the history of iOS.

Products that would be killed include:

  • Retina display iPad (4th generation): As the only iPad running on an A6X processor, it is bound for a rapid end of line.
  • iPad 2: It runs a dual-core A5 processor, its resolution is out of line with all the other products and, at 30 months old, it is one of the oldest iOS devices still sold by Apple. With a price point ranging between $399 and $529, it sits awkwardly between the iPad Mini (which sells for $329 to $659) and the iPad Retina (which retails for $499 to $929)
  • iPhone 5: As the only device running on an A6 after the upgrades, it looks like its chances of survival are limited.
  • iPhone 4 and 4S: Powered by the A4 and A5 processors, those are the low end of the iPhone line. However, they also represent a challenge as they offer a different sized screen than the iPhone 5, used 30-pin connectors, and Micro-SIMs instead of the mini-SIMs introduced in the iPhone 5. This is where the rumors of a cheaper iPhone come in: While the iPhone 5 may remain on the market at a $99 price point, the demise of the iPhone 4 as the “free” option leaves a gap in the product line. The new cheaper iPhone could help fill some of that gap.
  • 4th generation iPod Touch: This one has been a bit of a surprise, as it somehow survived cuts when the next generation was introduced. With a different screen resolution and the news that iOS 7 will not run on it, the writing is on the wall here. A question remain as to what might replace it. Will it be a price drop on the lower end of the 5th generation model? Or a whole new product?
  • iPod Classic: The venerable scroll wheel iPod is now officially at the end of its possible road. Its click wheel is not used in any other product Apple offers, its dock connector has not been upgraded, its screen is a different resolution from any other Apple product, and its hard drive is not a solid state one.
  • iPod Nano: With a pedometer, Nike+ support, and FM radio, the nano is aimed at a particular subgroup of users: people who exercise. As there has long been rumors that Apple was going to come out with a watch, it seems that this product would now be superfluous. Expect it to be replaced by the new iWatch.
  • iPod Shuffle: The rumors of an iWatch will make the portability of the iPod shuffle a thing of the past. With no touchscreen, and few upgrades in the last few years, the Shuffle may finally be at that point where Apple can move forward without it.

Meet the new crew

With so many products seeing the end of the road, the potential for huge gaps in the product line exist so we will see some upgrades.

  • iWatch: Long rumored as an iOS device that one would wear on their wrist, the iWatch fits perfectly in the $149 slot occupied by the iPod Shuffle. This will be the new entry point device for the iOS line. It will include a 2 inch display, pedometer, audio and video player, Siri, Nike+, and will run iOS apps that can fit on its 16Gb of space. The whole thing will be powered by an A-5 processor and a 32Gb version will be available for $249.
  • 128Gb 5th Generation iPod Touch: While this will not be mentioned during the keynote, this new larger capacity touch will come in at a $399 price point (the 64Gb version will drop to $299 and the 32Gb will drop to $229). Apart from the larger storage space, it will have exactly the same specs as other 5th Generation iPod Touch products.
  • iPhone 5S: The star of the presentation. With a new 64-bit processor (the A7), the new phone will not only run faster but also be able to address more memory, with 128Gb becoming the new high-end version (for $399), 64Gb being the middle one (for $299), and 32Gb the low end (for $199). The phone will also include a fingerprint sensor (embedded in its front button), a better motion sensor (for motion tracking above the screen), a pedometer (similar to what Samsung did with the Galaxy S4), and a LED flash on the back-facing camera. The S will stand for sensors, not speed.
  • iPhone 5C: This device, available in a variety of colors, will be the “cheaper iPhone”. With 16Gb of space, no sensors, and an A7 processor, it will replace the iPhone 4S at the $99 price point; an 8Gb version will be available at the “free” pricepoint, replacing the iPhone 4.
  • 2nd generation iPad mini: This will be a modest upgrade, with a bump in the processor speed to the dual-core A7 that powers the new iPhone. Most significant in this upgrade, however, will be the move to a retina display from its traditional one.
  • 5th generation Retina display iPad: Sporting the new A7 chip, a better motion sensor, a fingerprint sensor (and an innovative way to manage profiles based on fingerprints), this iPad will essentially be a large version of the iPhone 5S. Most significant here is that we will see a price drop of about $100 on each model, with the new iPad starting at $399 and topping out at $829.

Simplification to conclusion

With this realignment, many improvements will have been made to Apple’s supply chain, improving its overall margins. In doing such a refresh, the company will have eliminated any non-iOS devices from its consumer electronic line (the death of the original iPod lines will increase margins across the board), dropped any non-lightning connectors, simplified its processor map (the A6 and A6x won’t be part of the new line, replaced by the A7 chip altogether), and decreased the number of screen resolutions it offers (to small, smallest, and larger).

On the low end of the spectrum, the company will have a tiny screen that is worn on a wrist (probably 512 by 384 at 264 ppi, mirroring the iPad dimensions), a 1136 by 640 at 326ppi resolution for its phones (and iPod Touch), and a 2048 by 1536 resolution at 264 ppi for its ipads. Developers will be happy to see that the simplified approach will remove headaches when trying to build apps that can run on the new variety of devices.

The price lines will remain the same, with the notable exception of the entry-point iPod shuffle disappearing, as well as the high end of the spectrum opening up for a potential new product to be introduced in the future.

With the long delays in a refresh on most iOS product lines, it seems the above case would present the optimal mode for the company and we will find out on Tuesday if the guesses are correct.

 

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