Apple Inc. – Yes, the New iPhone SHOULD Be Smaller! (AAPL)

The iPhone 5s isn’t cutting it, look for a new 4-inch iPhone in early 2016

Websites that track Apple Inc. (AAPL) rumors were all over a report from KGI Securities analyst Ming-Chi Kuo suggesting Apple will release a new 4-inch iPhone early next year.

AAPL to release new iPhone in early 2016
Source: Apple

The new iPhone (which seems likely to be designated either the iPhone 6c or iPhone 7c) would be a replacement for the dated iPhone 5s and discontinued iPhone 5c, filling two positions in AAPL’s iPhone lineup: the mid-range price and the smaller display.

According to 9to5 Mac, the new iPhone would gain an A9 CPU and the curved edge glass look of the iPhone 6/6s, with a metal case that would be available in several colors.

And to support Apple Pay, the new 4-inch iPhone would be equipped with an NFC chip. As far as design, think iPhone 5s, but less angular (thanks to that curved glass display), and likely more colorful. It would also use the iPhone 5s camera rather than the updated shooter in the iPhone 6s.

Ming-Chi Kuo is calling for a $400-$500 price tag on the new iPhone.

The move makes sense for AAPL, both in product lineup and timing.

While the move to larger displays with the iPhone 6 and iPhone 6 Plus were seen as a big win by many smartphone buyers, not all consumers wanted a larger iPhone. Bigger displays make it a snugger pocket fit, and the smaller handed folks among us may find single-handed use next to impossible on a behemoth like the iPhone 6s Plus.

With continued downward price pressure on smartphones and the eradication of the flagship, there is also significant pressure on AAPL to be selling a new iPhone for less, without having the compromise of older internals.

For example, Alphabet’s (GOOG,GOOGL) Google is selling its new Nexus 6P for $499. That’s a flagship Android phone with cutting-edge hardware for just $50 more than Apple’s iPhone 5s, which is over two years old and doesn’t support features like Apple Pay.

MacRumors says Kuo is predicting sufficient demand that the new 4-inch iPhone could move 20 million units in its first year of sales.

That’s not a huge number in terms of overall iPhone sales, but it also helps to prevent a segment of potential new iPhone buyers from jumping ship.

If it happens in February as predicted, the timing of the new iPhone launch would be very different from AAPL’s typical late fall release, but this also makes sense.

Historically, iPhone sales begin to taper off in the second quarter, as the previous fall’s launch rush dies down and some potential buyers begin to hunker down and wait for the next model to come out. By releasing the 4-inch iPhone in February, the bump from launch sales for the new iPhone would help to reduce the extremes in the iPhone sales curves.

Another motive for releasing a new iPhone in February instead of waiting until the fall?

AAPL arch-rival Samsung (SSNLF) is in the habit of announcing its new flagship Galaxy smartphones at Mobile World Congress, the biggest event for smartphone manufacturers. MWC 2016 runs Feb. 22 through Feb. 25, and the news and launch of a new iPhone — which tends to become the focus of every technology and business publication — could seriously rain on Samsung’s new Galaxy launch parade.

Ming-Chi Kuo has pretty good track record as far as AAPL predictions go. Among many career bullseyes, he called the first gold iPhone, predicted the iPhone 5c and went on record as saying the Apple Watch would come in two sizes a full year before Apple launched it.

While his prediction of a new iPhone sporting a 4-inch display coming early next year isn’t a guarantee it will happen, it’s definitely plausible. Especially when you look at the factors that support AAPL doing so.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

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