Beyond the iPhone 5: The future of Apple’s mobile devices

There have been a flurry of rumors surrounding Apple’s next iPhone this week. Some of them are reiterations of previous rumors, like a thinner and lighter iPhone, and some focus on a lower-end model that might appeal to prepaid customers. But the rumor that the next iPod may feature a 3G connection has drawn the most commentary.

The concept of a ‘second model’ of iPhone is one that has been being tossed around since the first iPhone was released. Back then it was an epithet hurled at the iPhone by people used to the old device strategies. In the pre-iPhone era, you had to fill the market from top to bottom, offering a flagship phone as an example, then making compromises down the lineup towards the low end. This conventional wisdom led many to predict the death of the iPhone if expansion wasn’t made into the lower end of the market. This wisdom led Microsoft CEO Steve Ballmer to famously state that “there’s no chance that the iPhone is going to get any significant market share. No chance.”

Growing pains

Now, here we are almost 5 years after the introduction of the iPhone and there is still only one current model. Sure, other devices like the iPhone 3GS get to stick around to help fill the ‘sale’ slot for carriers, but that’s just a way to squeeze more juice out of an existing manufacturing process. Yet, the iPhone has managed to gain traction and recent reports put it at over 8.3% of  all mobile phone subscribers and 26% of smartphone subscribers. Yet there is still much room for improvement and commentators like Asymco’s Horace Dediu have remarked that the next big opportunity for growth by Apple is its entry into the pre-paid market.

The pre-paid market in the US is fairly anemic, but dominates Asia and Africa and holds a fair portion of the market in Europe and Latin America. This huge potential market is likely making Apple’s shareholders salivate and would provide a burst of growth to the company if it were able to launch a product cheap enough to appeal to a non-subsidised pre-paid customer. This is why rumors of a lower-end iPhone have caught fire so quickly. It makes good business sense.

But those rumors have been supplemented in recent weeks by talk of a thinner and lighter iPhone 5 ‘flagship’ model, an ‘iPad HD’ later this year and the iPod 3G. Many of these rumors are backed by ‘sources familiar with the matter’ and some of them are even contradictory. Why is it that we see so many people that are absolutely sure of the existence of new products coming from Apple? And why is it that many times they don’t materialize on schedule?

We don’t need roads

There’s actually a very simple answer to this question. Apple has its device roadmap planned, and in some cases built, much further out than the iPhone 5, iPod touch 3G, iPhone light and iPad HD.

Apple is, of course, notoriously secretive in the construction of its prototype devices. Intense precautions are taken to prevent information about the newest products coming out of the design and engineering labs at Apple, although we have gotten a, very controlled, look at the way that Apple tests iPhone antennas and a brief glimpse of the design labs in an interview with Jony Ive for the movie Objectified. Aside from those very tightly orchestrated moments Apple’s well documented obsession with secrecy normally prevents solid information about the company’s releases from escaping. There are rare instances where a huge mistake is made and a future product, like the iPhone 4, is revealed. But by and large, the company is an iron curtain of info about new products.

Much of the engineering that happens in tightly controlled environments at Apple, even inside the labs. Some Apple engineers working on prototypes literally plug an iPhone cable into a black box that contains prototype guts. This means that they may have knowledge of internal components but no idea what it may look like, just as the design department knows that they have to fit certain components inside of the device, but may not know the exact identity of those components. I’d venture to say that there is actually very few people at Apple with a complete picture of a new device much before it’s released to the general public.

That doesn’t stop tidbits of information from leaking out about new products however. Sometimes these are controlled leaks initiated by Apple themselves. In rarer cases, they arrive via an Apple employee that actually has a knowledge of an upcoming product. At times, you’ll even hear of leaks coming from people that are associated with the company, you may see these being referred to as ‘a source that has dealings with Apple’. They may be contractors or guests of a VIP that share information about what they see or hear with news outlets on an anonymous basis.

These rumors often illustrate the point that, while we may be hearing about things that are happening in Apple’s design labs, these may never see the light of day. For every product or feature that Apple releases, there were hundreds of iterations that they explored, executed and discarded. You don’t get products as polished and exhaustively designed as the iPhone, iPad and iPod without trying new things, some of which may work and some of which may not. There is probably a dozen designs for products that may just not work at the moment because of supporting technology, but lay out the basic roadmap for the future of the company’s products.

To illustrate, several weeks ago I heard a second hand rumor from one of those eponymous ‘sources that have dealings with Apple’ about a prototype that they were shown at Apple HQ of a device with a ‘transparent’ display. I nodded and smiled, thinking that perhaps they were just looking for attention or wanted to make the visit seem more exciting. Then, just a couple of days ago, a patent granted to Apple surfaced detailing designs for Smart Transparent Displays. You just never know what Apple is cooking up that might not be ready for primetime now, but may show up in the future.

This brings us to another major source of rumors, suppliers. The difference between rumors from leaks and sources and those from suppliers is that many times, not always of course, the components that suppliers are seeing orders for are more solid indications of a product that has made it through the part in Apple’s curtain and is on its way into production. When you look at the massive scale at which Apple manufactures products, it’s incredible that we don’t get more advanced information about the products coming to market.

The rumors about a retina-display equipped iPad started even before the iPad 2 was released, but have gained some steam recently with reports from suppliers that Apple is getting set to ramp up production in August. These were compounded with an article by the normally reliable Joshua Topolsky at This is My Next, in which he says a source indicated that the next iPad would be a double resolution version that will compliment the iPad 2, instead of replacing it, and that it would arrive later this year. More on this in a bit.

Late Friday an unverified rumor popped up on a Dutch blog that the next version of the iPod touch would have a 3G chip that would allow it to work on a cellular data network. It’s not clear where the rumor came from, but it actually makes some sense as far as Apple’s roadmap for the future and the rumors of a pre-paid ‘iPhone lite’.

About those G forces

The blog states that the next version of the iPod touch will come equipped with a SIM card slot that you fill with a card purchased from your ‘ISP’ or carrier. The move to add 3G to the iPod touch itself isn’t all that surprising. It’s a prediction that anyone could have made as soon as the iPad got a subscription-free data plan. In light of certain features of iOS 5, like iMessages, it seems more inevitable than ever.

I actually made the case for the iPod touch as a 3G device the day after WWDC in June, my mind swirling with the implications of iMessages:

The next logical step for the iPod touch is a 3G (or 4G, or LTE) device with service provided on the subscription-free iPad model. With such a device, Apple is poised to have a data enabled device, with no subscription, that is capable of cross-device messaging, voice and video calls via FaceTime and gives the user the ability to walk away at any time and switch to another carrier.

Now think about it this way: What if such a device was just called an iPhone?

If you insert the term ‘lite’ after the word iPhone in that last sentence, you’ll start to get a better picture of where these cheaper iPhone rumors have come from. If you compile the general rumors about Apple’s touch screen devices, you end up with the iPad, iPad HD, iPhone 5, iPhone ‘lite’ and iPod touch 3G. In the end, I think that the last two on that list are actually the same device. The ‘iPhone lite’ could actually just be a 5th gen iPod touch.

Although its unclear where the rumors of the iPod 3G are coming from, or if they’re even true, It would be easy to see a next-gen iPod touch with 3G capabilities being confused as a cheaper version of the iPhone intended for the pre-paid market. Remember that the current iPod touch has an estimated materials cost of about $170 and, besides a 3G chip, lacks just a few components, including the second microphone, better camera, phone receiver speaker, LED flash, compass, GPS, proximity sensor, mute switch and IPS screen of the iPhone 4. If Apple was able to aggressively position themselves in the market to obtain these parts cheaply which, by some accounts, they have, they should  be able to produce it for sale at around the $300 mark, counting in the typical 50% markup on its products.

My thoughts regarding the ‘iPhone lite’ and its similarity to the rumors surrounding the iPod touch 3G are shared by others. Over at 9to5Mac, Seth Weintraub makes the case for an iPod touch with 3G and ‘phone parts’

Start with the same hardware.  Add the GPS/3G baseband chips and some phone wiring and a solid 3 megapixel camera and you are 99% of the way to an iPhone lite.  iPhone Air? Whatever.

Instapaper creator and writer Marco Arment also subscribes to the idea that a lower-specced iPod touch lookalike could actually be the lower priced iPhone:

The rumored thinner, lighter iPhone could be the very-low-priced model, closer to the iPod Touch in appearance and component quality, with lower specs, less storage, and an unsubsidized price of around $300.

But, it’s important to remember that this first iPod with 3G might not ever be positioned as a phone. Instead it would be treading further down the path that the iPad 2 blazed with regards to a contract-free pay-to-play 3G plan. Apple needs time to get the iPod touch onto the market with a 3G data plan in place and acclimate carriers around the world to supporting a portable pre-paid ‘mini iPad’ with a non-contract data plan. I believe that, while we may see an iPod touch 3G later this year, we won’t see a cheaper iPhone being offered as a pre-paid option. Instead, Apple will be producing at least one 3G model of iPod this year and, depending on the maturity of the 4G LTE networks of the major carriers, one more featuring an LTE chip.

Then, by the time that 4G LTE is widespread enough to support a data-only ecosystem, Apple will have one or two generations of this ‘iPhone lite in disguise’ under its belt and be ready to drop a 4G, data-only iPhone lite.

Now, about those iPad HD rumors for later this year.

How about no?

Supply issues that plague the current iPad make it unlikely that an iPad HD will arrive later this year. Apple has been unable to deliver enough iPads to fulfill market desire this year and only last week have the shipment dates fallen below a couple of weeks.

Those same supply issues could be the motivation behind Apple purchasing retina parts that appear as if they’re intended for a device that will appear late in the year, but will instead appear early next year. It is simply ramping up supply. An interesting Quora thread that appeared last week offered some great information about how Apple spends its money to stay ahead of the competition. The information centered around two ideas, that “Apple has access to new component technology months or years before its rivals,” and that “Eventually its competitors catch up in component production technology, but by then Apple has [its] arrangement in place whereby it can source those parts at a lower cost due to the discounted rate they have negotiated with the…provider of those parts.”

Building a supply of retina display parts well ahead of production and introduction only makes sense for Apple at this point given the proven demand for the iPad. It would be in Apple’s best interest to massively increase its ability to deliver iPads to customers hungry for them well before releasing an iPad HD. Given that it is still attempting to deliver enough iPad 2’s to satisfy demand, it makes it difficult to see the company being ready to field double the models of iPad, including various sizes and 3G configurations, later this year.

What does this mean?

The only thing that we can take to be self-evident at this point is that there will be a new iPhone in September. It’s an extremely safe bet that it will feature a thinner, lighter design and will be powered by the newer A5 processor. An iPod touch refresh is also nearing 100% likelihood as well. The wild card here is whether that refresh will include a 3G radio as well as other internal upgrades.

An iPad HD is absolutely coming. There has never been any doubt that the next logical step in the iPad’s evolution has been a higher resolution screen, especially since the debut of the iPhone 4 and its retina display. There is still some question as to whether that iPad will be released alongside the existing iPad 2, or replace it entirely. If I had to place my bets though, I would put them solidly with the two models existing side-by-side, at least for some time. The iPad family could use expansion, just as much as the iPhone family, it’s just much more likely to come some time in March or April of next year.

Which brings us to the ‘iPhone lite’. It is possible that Apple will address pre-paid customers through an entirely new line of iPhones at a more aggressive price. There are examples in the history of the company that speak to its desire to dominate an entire market, the iPod being a recent example. The appearance of a 3G-enabled iPod touch first, as a forerunner for a future ‘lite’ iPhone, feels like a more likely outcome at this point.

If you look at the new features of iOS 5 announced at WWDC, it’s clearer than ever that Apple’s endgame is a data-only device that is completely carrier agnostic. Apple wants all of its devices to follow the iPad model in that a customer should be able to purchase one of Apple’s devices anywhere and activate a month-by-month, pre or post-paid data service on any carrier in the world. That is the goal that the company has been working toward for the last several years.

Now it’s really up to a set of factors to determine when that happens. Among those is how successful Apple will be negotiating data-only deals for iPod touch 3Gs, the growth and maturity of 4G LTE networks and Apple’s ability to produce enough product for consumer demand. Once Apple breaks that ice, don’t be surprised to see other manufacturers jump on the boat. They’re not going to let the second big revolution to hit the mobile business in the last decade pass them by.

Apple’s next couple of years are going to be absolutely fascinating and stand to impact all users of mobile devices, regardless of platform.