Demand for extra-large iPhone may be overstated

Survey hints that Apple will play it conservative and opt for an iPhone 6 with a screen smaller than 5 inches

Although Apple watchers expect the company to boost the iPhone's screen size this fall, demand for a very large display is actually weak among iPhone owners in China and even weaker in the U.S., survey data shows.

According to Kantar WorldPanel Comtech, less than 5% of iPhone owners in China who upgraded over the last year deserted to Android and opted for a device with a screen 5.5-in. or larger.

Such changes were even rarer in the U.S., where just 0.3% abandoned iOS for Android and in the process bought a 5.5-in. or larger smartphone.

"People say that Apple needs to have a bigger iPhone," said Carolina Milanesi, chief of research and head of U.S. business for Kantar. "But the numbers don't really show that."

Or at least not an iPhone with a mammoth 5.5-in. screen. And there are other reasons why Apple would be hesitant to go extra-large.

"Five-point-five, done well, is a nice form factor," said Milanesi, "but something smaller, like 4.7-in., would be more mainstream. Given that Apple usually has only one [screen size], they're more limited in how much they can play with size."

Because Apple doesn't mimic the broad portfolios of Android smartphone makers, particularly fierce rival Samsung, and has essentially one shot each year, it will probably play it conservative, said Milanesi, explaining why she believes a 5-in. or larger iPhone is out of the question.

Kantar's data doesn't suggest that Apple will flop with a larger iPhone, simply that it's unlikely the screen size will play an overwhelming part in customer decisions whether to upgrade.

More important, said Milanesi, was the distribution of the various models now in U.S. and China consumers' hands. In the U.S., the iPhone base is now split between the iPhone 4 at 22%, the iPhone 4S at 27%, the iPhone 5 at 24%, and the iPhone 5S at 11%. China's distribution skews toward older models, with 33% on iPhone 4, 36% on iPhone 4S, 15% on the iPhone 5 and 7% on the iPhone 5S.

"The age of a phone matters, and Apple's installed base mix shows strong potential for upgrades," Milanesi said in a May 29 blog. In the interview Friday, she argued that the upgrade pool was bigger this year than last because of the year-on-year growth of the installed base and the large numbers of customers who own a model two years old or older.

But a new model and a larger screen don't guarantee big sales. "Price matters, especially in China," Milanesi said of that more volatile market, which relies less on carrier subsidies than does the U.S. "The question again this year is what they do in the lower end of the market."

Analysts last year predicted that Apple would launch a lower-priced iPhone to cater to more affluent consumers in developing smartphone markets, like China and India. For the most part, they were disappointed with the iPhone 5C, and criticized Apple for not cutting the price further and going after market share.

iPhone ownership skews toward older models in China, where subsidies play a smaller role and prices matter more than in the U.S. (Data: Kantar WorldPanel.)

Milanesi beat that drum again, believing that Apple needs to do more in 2014 to entice Samsung's premium customers to switch to the iPhone. "Apple needs a price point [for a new model] closer to the iPhone 4S, which is still selling quite well in China. Will that happen? I don't know," she said.

On Apple's China online store, the 8GB iPhone 4S sells for 38% less than the lowest-priced 16GB iPhone 5S, and 20% less than the 8GB iPhone 5C.

"From an Apple perspective, you have to put price in the equation," Milanesi asserted.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

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