Apple's Next Pivot

| About: Apple Inc. (AAPL)

A lot of my favorite developer friends are convinced there will be just one new iPhone model announced on Tuesday,-- not two. A big part of their reasoning, at the most simplistic level, is "This is what Apple (NASDAQ:AAPL) always does, and therefore this is what they are going to do this time". Or a derivative reason is given- "It's too complicated"

My bet is on two new models, an iPhone 4s and an iPhone 5. Here's why.
1) They have a bunch of iPhone 4 models with a lot of older parts that have lower margins and screw up the supply chain. Having different models for CDMA/ GSM etc is a real pain and oh yeah, it hurts profits. If Apple just had to sell one iPhone 4 version with one air interface chip what would the profit impact be? Well guess what, they make those now. So why not redo your flagship with the new chipsets for a higher margin per unit? If there is enough of a business reason, people change release and product patterns to accommodate.
At the same time they are losing share gains to Android and need a $99 model to compete in the marketplace. The logic here is to take the existing 4 design, do one chip that is GSM/CDMA with compatibility across a bunch of bands to gain share. Things are different than when Apple first launched the iPhone in terms of the profit from the phone relative to the profit form the things they make on the phone. Even if they used a loss leader strategy, they'd make more on the music, movies, software and services per unit then they made a few years ago per unit sold.
For those who say this would be too complicated to have two phones-- actually by doing this Apple is simplifying their supply chain by getting rid of multiple models for various markets/ carriers and specific air interfaces or in some cases spectrum bands. This is why T-mobile is often left out as the red headed stepchild. Tim Cook is supposed to be an operations genius and this would have a positive impact on inventory management, cost structure and margin. In short the current setup may seem simpler from the perspective of a coder, but not if you actually have to make and sell the phones.
2) They need something new to compete with Samsung which has copied the form factor/ capabilities of last year's model. This means a larger 4 inch screen, an A5 chip and hopefully a lot more battery life/ power on the device. Samsung and Motorola (NYSE:MMI) are now serious contenders and the existing iPhone is more of a "toss up". If the three brands were just launching smartphones today, it'd be a pretty even race.
Beyond whatever answer we see Tuesday, Apple is going to focus extensively on preserving market share in iPad. The Android onslaught is having its effect and the single biggest advantage Apple has is owning the tablet space. Just looking at the math-- it is. That means a big pivot from Apple to link their product strengths in tablet, with phone and other form factors every chance they get to preserve margins and advantage. My bet would be though with $200 perfectly excellent tablets running Ice Cream Sandwich next year, this is going to be challenging and Android might gain tablet share faster than they did on smartphones.
Either way the most important thing is we've got some good competition in the marketplace so that's good news for all sorts of reasons even if I don't win any bets Tuesday.