If This New iPhone Report Is True, Apple May Be Hosed

Tim Cook at Goldman Sachs Tech Conference 2013Tim Cook at Goldman Sachs Tech Conference 2013

Photo: Owen Thomas, Business Insider

A couple of years ago, Apple made the decision to build a critically important new product, the iPhone 5, with a relatively small screen.

This decision, combined with the time it took Apple to release the phone–the iPhone 5 arrived about 15 months after many Apple observers expected it to appear–contributed to Apple losing its lead in the global smartphone market.

By the time pictures of the as-yet-unreleased iPhone 5 began to leak onto the Internet last summer, Apple’s biggest competitor, Samsung, had already launched a well-received phone with a much bigger screen: The Galaxy S III.

In comparison to the Galaxy, the early photos of the iPhone 5 made the iPhone 5 look disappointingly small and ordinary.

When Apple officially launched the iPhone 5 last fall, the company argued that the iPhone 5’s screen size was the “right size,” because it was the only size that allowed the phone to be held comfortably in one hand.

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<strong>WATCH: Here's One Reason Why <br />You Shouldn't Buy The iPhone 5<br /></strong>

That argument won over some consumers, but many other buyers decided they preferred Samsung’s bigger screen. And that and other feature comparisons led Consumer Reports to rank the iPhone 5 merely the third-best of the top smartphones, behind Samsung’s Galaxy and an LG phone based on Google’s Android platform.

What this meant was that, after five years of dominating the global smartphone market, Apple had finally lost its lead.

Because the hyper-growth in the smartphone market had already shifted to price-conscious emerging markets, where most consumers cannot afford to pay $600 for a phone (and there are few carrier subsidies)–and because Apple missed much of this growth by not offering a cheaper phone–Apple also rapidly began to lose global smartphone market share.

So that brings us to today.

The iPhone is still Apple’s most important product by a mile.

In addition to generating about half of Apple’s revenue, the iPhone also likely generates well more than half of Apple’s profit.

The iPhone, in other words, is directly responsible for Apple’s astoundingly high profit margin and even more astounding ~$40 billion of annual profit.

To regain its mojo in the stock market–and its halo of invincibility and superiority with consumers–Apple needs to regain its mojo in the smartphone market.

Specifically, Apple needs to once again leapfrog competitors that, over the past five years, have finally caught up to it.

There has been hope in some circles that Apple’s next iPhone model, a big-screened version described as the “iPhone Maxi,” as well as the launch of a cheaper iPhone model, would help it do that.

For those holding on to this hope, one report from earlier this week was not encouraging.

An analyst named Peter Misek of Jefferies reported that Apple had wanted to release a forthcoming big-screened iPhone this year, but that manufacturing problems have forced the company to push back the launch until 2014.

Specifically, reports BI’s Jay Yarow, Misek says that Apple wanted to launch the larger model in October. But Apple’s screen suppliers were not able to manufacture enough screens in that timeframe:

Apple’s iPhone uses a technology called “in-cell,” which essentially meshes the touch screen with the glass screen into one thin display. Its partners can’t get good enough yields making those displays bigger to launch the iPhone 6 this year.

If Misek’s report is accurate (no guarantees, obviously–and given the steady stream of often-inaccurate reports about Apple’s future products, it’s best to regard it as a rumour), this is a major setback for Apple.

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<strong>WATCH: Samsung's Giant Phone, <br />The Galaxy Note, In Action<br /></strong>

Samsung is currently gearing up for the launch of its next version of the Galaxy phone, which is expected this spring.

The next-generation Galaxy will likely have a screen that is as big or bigger than the current Galaxy S III. Samsung expects the phone to be so popular that it is reportedly gearing up to make 100 million of them this year. And it is planning to launch the phone with a massive marketing blitz.

If Samsung does launch the new Galaxy this spring, and Apple can’t launch its own new phone until next year, Samsung may have as long as 9-12 months to market and sell a new phone that many consumers will consider obviously superior to Apple’s iPhone before Apple is even in the market with a big-screened phone.

(Apple fans may cling to the argument that the bigger phones don’t fit comfortably in one hand, but lots of consumers don’t appear to be bothered by this. Many iPhone 5 owners–including this one–are envious of the size of the Galaxy screen whenever they see one. And even diehard Apple fans have become obsessed with the idea of Apple launching a bigger iPhone, with some creating beautiful renderings of what such a phone might look like.)

If that happens, it will seem to many consumers as though, in the space of a few years, Apple has gone from having a year-long lead over all competitors in the smartphone market, to being a year behind.

For a company that is as dependent on the iPhone and iPhone profits as Apple is, that would be devastating.

SEE ALSO: The Good News Is… Apple’s Stock Now Looks Cheap

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