Speculation about Apple’s new smartphone lineup has been circulating since last year at least. The new version will likely be called the iPhone 12. But the most debated question is whether the devices (or which trims) will have 5G capabilities.
Despite all the hype, I bet not everyone understands the significance of 5G and how the compatible devices can leverage the technology. 5G goes beyond increased download speeds of your favorite YouTube video. It can ultimately allow companies like Apple to expand its revenue opportunities.
What is 5G?
Let’s start with a brief, non-technical definition of what the technology is:
5G is the fifth-generation technology standard for cellular networks, and the successor to 4G. The main advantage of the new standard is higher download speeds of up to 10 gigabits per second. Also, it allows for better responsiveness (referred to as “lower latency”) and better multi-device connections at once (primarily for sensor and smart devices).
What’s in it for Apple?
Widespread use of 5G is still in its infancy stages. In the US, T-Mobile is the only carrier to cover a wide territory, although at the lowest speeds in the industry. Verizon offers the speed, but covers only about 5% of the country’s population. See chart below.
Apple has probably been fine for not having a 5G smartphone model in the market so far. It is hard to imagine new demand shifting heavily to Samsung or LG only because the Cupertino company is about a year “behind the curve” in the new technology. Of course, this could change if Apple fails to launch its 5G model later in 2020.
Yes, the “5G supercycle” could come to fruition. Despite the apparent success of the iPhone 11, some might be holding off on their smartphone upgrades until the 5G-enabled iPhone 12 sees the light of day. However, I think that the real benefit of 5G to Apple is not in near-term phone sales.
Once a wider spanning network infrastructure is in place and later generations of 5G devices have been rolled out, applications that use the new technology can be developed. Something similar happened during the 4G upgrade. Even though commercial LTE deployments began around 2009 and 2010, the technology did not become truly useful to the masses until a couple of years later.
Voice and video over LTE services were commercially launched in 2012. Right around the same time, companies like Uber became increasingly popular. Social media was taken to a new level with the use of augmented reality and, later, live content. Streaming Netflix movies and shows, including outside the home, became feasible.
Apple’s service opportunities
I expect 5G to spark the new application revolution, starting in 2021. In the case of Apple, many new or revamped services could be offered.
Due to the low latency of 5G, live on-the-go gaming might be an opportunity. This could be a chance to take Apple Arcade, for example, to new heights. Also, the yet-to-be-released Apple Glass could use 5G to boost its virtual and augmented reality capabilities. Personal health and industrial applications, both still largely untapped by the Cupertino company, can be explored.
True, even new Apple hardware could be developed in the wake of 5G. The ability to better connect smart devices could send Apple deeper into the IoT (internet of things) rabbit hole. Who knows, maybe even the long-speculated Apple Car with autonomous driving may finally come to light.
This may all sound great to tech enthusiasts. Still, as an investor, I would be more excited about the prospect of high-margin service revenues doubling again, maybe by 2024. This could very well be Apple’s 5G legacy to shareholders.
(Disclaimers: the author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. Thanks for supporting The Apple Maven)