Even though the next major release of the Apple (NASDAQ:AAPL) iPhone is many months away, the tech media is awash in iPhone rumors. The features attributed to the next iPhone amount to a wish list of everything most of us would ever want in a smartphone. The next iPhone will be a great phone, but many rumored features will not make it into this year's iPhone. In this article, I sift through the rumors to separate out realistic from unrealistic, and offer an unvarnished assessment of the iPhone's market prospects.
First, the Basics
The next top-of-the-line iPhone will be called iPhone 6, in keeping with the nomenclature that Apple has been using for years. The 6 will have a larger screen and faster processor, to be called the A8. The 6 will come with iOS 8, which will have been previewed as it is every year at WWDC in June. iPhone 6 will debut at a special event in late September at which the usual superlatives ("amazing," "incredible") will flow from the lips of every Apple exec.
The above summary is what everyone (myself included) in the tech media is generally agreed on, except maybe for the bit about superlatives. For a run down of all the current iPhone rumors, see MacRumors. Many specific predictions don't pass the "giggle test" in my view.
The Giggle Test
Sapphire touch screen: Many rumors predict the iPhone 6 will use a sapphire outer layer for the touch screen. GT Advanced Technologies (GTAT) has announced that it's setting up and operating a sapphire crystal facility for Apple in Arizona.
Sapphire is second only to diamond in hardness, so it would make a great screen cover material, but I'm skeptical about the economics. Analysts have estimated that a sapphire screen cover will cost about $30 vs. $3 for Corning Gorilla Glass. GTAT has represented that it thinks it can significantly reduce sapphire production costs.
Basic physics may get in the way. Sapphire has to be grown as a crystal boule in a high temperature electric crucible over a period of 18 days. The energy cost of this process is about 400 times that of just melting and forming the same amount of glass. Also, after the boule is grown, it still has to be sliced up into wafers and optically polished. Corning Gorilla Glass is formed in a clever process as a continuous thin sheet, which solidifies in air in its final thickness and flatness. Little more processing is needed besides cutting up the large sheets into the little sheets needed for iPhone displays.
Regardless of how the economics fall out for sapphire, it doesn't appear that the Arizona plant will be ready in time for iPhone 6. This has to do with the long production lead time that is required for a product like the iPhone. iPhone production has to start roughly 4-5 months before product appears on store shelves, in order to build up sufficient inventory and transport it to various retail outlets. This means parts suppliers have to start production now in order to feed into final assembly of iPhones in time for a late September launch. GTAT's statements about the plant imply that it won't be operational until the second half of the year, too late for a September iPhone 6 launch.
Passes the Giggle Test: Not quite.
Solar cell integrated with iPhone touch screen: While sapphire touch screens may have challenging physics limitations, this particular rumor is just physics challenged. It doesn't work at all. The reason is that the solar cell has to be opaque in order to absorb light and convert it into electricity. In the various layers of glass, color filters and liquid crystal that make up a touch screen display, there's simply no where to put a solar cell where it won't be in the way, or otherwise degrade the quality of the display.
But wasn't there an Apple patent about this? There is a patent for a combined touch sensor (think track pad) and solar cell. The authors of the patent were careful to avoid combining the solar cell with a touch screen, since they knew that wouldn't work. At one point in the patent, they do show a hypothetical device with a touch screen, but it's separate from the combined touch sensor/solar cell, in a layout reminiscent of the iPod Classic. However, the reference in the patent to LCD displays (touch enabled or not) may have confused some readers.
Passes the Giggle Test: Emphatically No.
iPhone 6 screen with 4.7 inch diagonal size and narrow bezel: This is something on which there's broad agreement. The iPhone 6 screen has to get larger. Narrowing the bezel allows for that screen growth while minimizing the growth of the width of the phone. Apple still wants to hold the line on the phone width, since it made such a big deal about it being "optimal" at the iPhone 5 launch. Probably the pixel resolution will be something like 1600x900 in order to keep it a "Retina display." This isn't really an obstacle for developers. Xcode makes adjusting for different screen resolutions pretty easy, and Apple will have built in support for the new screen resolution in the next iOS version.
Passes the Giggle Test: Yes.
iPhone 6 screen with 5.7 inch diagonal size: Some rumors have proposed that Apple will simultaneously release an iPhone "phablet" along with the larger iPhone 6. Personally, I like the idea of an iPhone phablet, but given Apple's continued belief in the importance of one-handed operation, this alone dooms any Apple phablet. But it goes beyond this to a mistrust of genre bending devices. Tim Cook likes nice clean device categories with no overlap: personal computers, tablets, and phones. Given the lack of success of Windows 8 in deliberately attempting to blur the boundary between PC and tablet, who can blame him?
Passes the Giggle Test: No.
iPhone 6 will use a quad core A8 processor manufactured by TSMC: For several years, TSMC (OTC:TSMWF) has been rumored to be making the next generation Apple A series SOC (system on chip), and each time we've been disappointed to learn that it was still Samsung (OTC:SSNLF). This may finally be TSMC's year. It recently announced that its latest 20 nm process is in full production of SOCs for an unnamed customer.
I'm not so sure about the quad core. Apple already has a faster processor than anything else ARM (NASDAQ:ARMH)-flavored in a phone, and it's going to get even faster with the 20 nm process. I think Apple will reserve the quad core for the next iPad.
Passes the Giggle Test: Yes, with qualification.
Q4 iPhone Market Prospects
With the iPhone 6, Apple will scratch a longstanding itch among many of us for a larger screen iPhone, but those looking for an iPhone phablet will be disappointed. With the continuation of the 4 inch screen in an iPhone 5x low cost variant, Apple will have achieved a greater level of product diversification in the iPhone family. However, even the lowest cost iPhone will continue to be priced at a premium compared to Apple's Android competitors.
Despite having the best processor in a phone and the best OS (yes, I'm a biased iOS developer), the lack of a phablet and a really low cost starter phone will probably mean a continuing decline in Apple's market share in Q4 2014. Apple investors can expect healthy y/y growth in iPhone unit shipments from 51 to 55 million units in the quarter. However, this will not keep up with the industry. Gartner analyst Anshul Gupta has stated that they expect smartphone unit shipments to grow at an annual rate of 24% to 1.2-1.3 billion. Most of this growth is expected in low cost phones targeted for emerging markets, where Google's (NASDAQ:GOOG) Android dominates.
Such a growth rate would be below the 26.5% reported by IDC in Q4 2013, but still very healthy. At that rate, Apple's market share for the quarter would slip to 15%.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.