Apple Documents Leave No Doubt Larger iPhones Are Coming

By Michelle Maisto  |  Posted 2014-04-07

Apple Documents Leave No Doubt Larger iPhones Are Coming

Samsung and Apple are back in court in California, and documents released as part of the patent-infringement trial speak volumes about issues on which Apple has been publicly silent.

While Apple executives have said that consumers like a phone they can use one-handed and reach a thumb across, and the company has stuck by its lofty pricing, insisting it's more interested in making great phones than on sales number, an internal slide from a fiscal year 2014 offsite planning meeting was titled "Consumers want what we don't have."

Growth, it shows, is coming from devices with screens larger than 4 inches and prices under $300.

A still more telling slide shows year-over year iPhone unit growth. In fiscal year 2009, Apple's iPhone growth was 107 percent; in 2010 it was 93 percent; in 2011, 78 percent; and in 2012, 74 percent. In 2013 it dropped precipitously, to 26 percent during the first quarter, then 12 percent during the second and 8 percent during the third.

These figures give a very different impression from what comes across during Apple earnings announcements.

Apple CFO Peter Oppenheimer told analysts during Apple's fiscal 2014 first-quarter call: "Despite supply constraints on iPhone 5S, we sold 51 million iPhones compared to 47.8 million in the year-ago quarter. That's an increase of 3 million phones, or 7 percent, and a new quarterly record. iPhone sales growth was very strong year over year in Japan … [and] we also generated strong year-over-year growth in greater China, Latin America, the Middle East and Russia. In the U.S. market, Apple remains the leading smartphone manufacturer."

"So what is going on?" asks another slide, getting to the bottom of Apple's falling sales growth. Apple points to three factors: Consumers want larger screens and less expensive phones; competitors have "drastically improved" their hardware and in some cases their software; and the carriers are no longer loving Apple.

"Carriers have strong interest in capping iPhone [sales] due to one or more factors," says the slide. These include the premium subsidy carriers pay (Sprint, finally getting the iPhone in 2011, likened the financial hit it was taking to making a Moneyball bet), "'Unfriendly' policies" and a "lack of alignment."

With the iPhone 5, Apple for the first time increased the iPhone's display to 4 inches on the diagonal, after generations of sticking with 3.5 inches.

With the release of the iPhone 5C, a slightly less expensive model with a plastic case, Apple also experimented, for the first time, with introducing two new iPhones in one year.

This year, it's expected that Apple will again push itself on both fronts, introducing two new iPhones, and both with much larger displays. Multiple reports have said Apple is planning a 4.7-inch model alongside a 5.5-inch "phablet."

Apple is also likely to reassess its marketing strategy this year. Competitors, it said in the internal documents, are "spending 'obscene' amount of money on advertising and/or carrier/channel to gain traction."

Apple Documents Leave No Doubt Larger iPhones Are Coming

A "Designed by Apple in California" ad last summer was a flop, according to Ace Metrix, a company that analyzes the effectiveness of ads through surveys. One expert told Bloomberg Business week that the ad "lacked joy" and was seen as bragging—something Apple doesn't do outright.

In a 2013 email, one of the submitted documents during the trial, Phil Schiller, Apple senior vice president of worldwide marketing, tells James Vincent, chief creative officer at ad firm Media Arts Lab, "I now have Apple board members asking 'what is going on with advertising and what are you doing to fix it'. The team is too good to be in this spot."

Schiller added that Samsung's pre-Super Bowl ad was "pretty good" and its ad team is "like an athlete who can't miss because they are in a zone."

The documents were submitted as part of the pair's ongoing patent-infringement suits. Samsung last year was ordered to pay approximately $900 million to Apple after being found guilty of patent infringement, but it is appealing that ruling.

The newest round of litigation also includes new assertions from Apple that Samsung infringed on patents with some of its new devices, as well as new arguments from Samsung, which says Apple stole two of its ideas for the iPhone and iPad.

Patent consultant Florian Mueller, in an April 6 post on his Foss Patents blog, called the premise of trying a patent case in front of a jury "fundamentally flawed" and quoted Red Hat CEO Jim Whitehurst, who spends a good deal of time fighting "patent trolls." 

"I have a degree in computer science, and these things are so far over my head. It takes weeks [for] Ph.D.s to figure out exactly what this is, and then you're going to adjudicate it in front of a jury that really is not technically savvy?" Whitehurst said during a 2011 interview. "Do you think this patent is valid or not? It's both expensive and just a bizarre way to adjudicate it."


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