Tech critics predictably pounced on the new Apple iPhone 5 yesterday (Wednesday) even before its debut event had ended.
As often happens with Apple Inc. (Nasdaq: AAPL) product introductions, many had hoped for more whiz-bang new features.
"Apple's Phone has been a trendsetter for half a decade. Now the question is whether it can avoid becoming a bore," lamented The Wall Street Journal.
The Apple iPhone 5 did get a bigger 4-inch screen, 4G LTE connectivity, and a faster A6 processor. But months of rumors and speculation had raised expectations for more dramatic enhancements.
Apple easily could have included some of those much-desired features, such as a mobile wallet chip (also known as NFC, or near-field communications), wireless battery charging, or biometric security (using your voice or fingerprint).
Amid the din of criticism, few are asking why Apple would leave such goodies out of the iPhone 5.
It could be as simple as the new stuff just didn't all fit in the case – the iPhone 5 is the thinnest and lightest version yet, after all.
Maybe the technology just doesn't work right yet.
But maybe, just maybe, Apple decided to hold a few plum features out of the iPhone 5 because it's mulling a major change to its iPhone business.
What if Apple has decided to modify its upgrade cycle to two iPhones a year instead of just one?
In that case, holding out a few juicy features for a late April-early May upgrade is strategic genius.
The Case for Semiannual iPhone upgrades
While semiannual iPhone upgrades goes against Apple's longstanding philosophy of once-a-year product upgrades, there are several reasons it makes sense to shift gears now.
Apple learned a harsh lesson in its June quarter, one it would not like to repeat in 2013.
Sales of the iPhone 4S slid dramatically, causing Apple to miss Wall Street earnings expectations.
Because the iPhone accounts for about half of Apple's revenue and almost two-thirds of its profits, dramatic swings in iPhone sales have a disproportionate impact on AAPL earnings.
Editors Note: This quarter and next will be huge for iPhone 5 sales.
By the June quarter, the iPhone 4S was not only competing against rumors of the iPhone 5, but a rising tide of new and improved smartphones based on Google Inc.'s (Nasdaq: GOOG) Android.
While Android phones lack the software-hardware integration and ecosystem of the iPhone, many are cheaper and offer features the iPhone lacks.
The harsh reality is that as the iPhone's rivals – and that now includes phones running Microsoft Corp.'s (Nasdaq: MSFT) Windows 8 – continue to improve, it's getting harder for Apple to hold out for an entire year between updates.
"Whilst the company is still reaping the rewards of the brand equity of the iPhone, consumers are notoriously fickle when it comes to buying handsets," Ovum analyst Adam Leach told CNET. "Without the continued innovation which we are accustomed to with Apple, the company risks losing consumer appeal."
Following past convention it will still technically be an iPhone 5, but Apple will add a letter — the iPhone 5N, for example. We'll just get it six months sooner.
Here's where an annual mid-spring iPhone release could help.
Loyal Apple customers would be less likely to wait for months to upgrade their iPhone. Customers in the overall market will have a fresh iPhone — not a 7- to 11-month old version – to compare to the latest models from competitors.
A semiannual upgrade cycle would prevent a precipitous drop in iPhone sales midyear. Not only would that spread iPhone revenue out more evenly through the year, it should improve total sales by rescuing sales that would have been lost in the latter stages of the old one-year cycle.
The one risk of the semiannual upgrade cycle is that Apple will need to add compelling features to the iPhone twice as often — no easy task. But as the iPhone matures, it's evident that even features like Siri, let alone a bigger screen and LTE, aren't enough to carry the product for 12 months.
What Apple (Nasdaq: AAPL) Held Back
So if Apple is indeed planning on a mid-spring iPhone 5 upgrade, which great feature is saved for it?
Candidates include a mini-fuel-cell battery technology that would enable the iPhone to go for days or weeks without recharging, wireless recharging, and facial recognition to unlock the device.
But at the top of the list is NFC, a chip that allows for mobile wallet transactions. If Apple is planning an iPhone 5N for mid-spring, this is the headline feature it will get.
There's plenty of evidence for this.
First of all there's Passbook, part of the next update to the iPhone operating system, iOS 6 (due out Sept. 19). Passbook brings payments for participating vendors to the iPhone – stores like Starbucks Corp. (Nasdaq: SBUX) and Target Corp (NYSE: TGT), digital movie tickets from Fandango, and airline tickets from Delta Air Lines (NYSE: DAL).
While a useful feature, it would be a killer app when paired with NFC.
In addition, Apple holds at least six patents for NFC.
And one Apple-oriented Web site, 9 to 5 Mac, in June uncovered evidence buried in code that indicated Apple had created two iPhone 5 prototypes – one with NFC and one without.
Now it's true the iPhone would not be the first smartphone to have NFC. And both Google and Microsoft already have unveiled mobile wallet technology.
But consumers have been slow to adopt mobile wallet technology. Only Apple, with its advantages of integration, huge customer base, and 435 million credit card accounts on file could change that in a hurry.
Apple has this technology ready to go. Using it in a surprise mid-spring iPhone 5 upgrade would stun the market.
What's more, it's also possible that the current iPhone 5 has a dormant NFC chip lurking inside of it. Apple has done it before.
A dormant Bluetooth chip in the iPod Touch (second generation) "woke up" when updated with iOS 3.
Such a move in May would thrill buyers of the original iPhone 5 while creating a huge instant pool of people to use Apple's NFC technology.
"Apple is biding its time at the moment with NFC, but I think they will be the winners in the long run," Keith Brown, managing director of paythru, told Computer Business Review. "When you consider that Apple has the user base to drive adoption of mobile payments, I am sure I am not alone in being very interested in where they go next."
Apple (Nasdaq: AAPL) stock has soared nearly 70% this year to more than $680.00.
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