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Summary

If 5G NR (3GPP R15) chipsets become a mainstream commercial reality this year, as looks increasingly possible, Samsung and Huawei are almost certain to incorporate them in at least some of their "hero" devices before year-end or early next year. If this happens, Apple will have to decide – because of the new competitive landscape it faces – whether it can continue with its past strategy of maintaining both high margins and market leadership and wait to add a new cellular generation to the iPhone, or whether it's wiser to take a hit on margins to help it maintain something like its current smartphone market share and launch 5G in September 2020.

Apple can't rely on leadership in some areas to delay on 5G

Because of accelerated work by the telecoms industry on 5G, network rollouts are happening faster than most expected this time in 2017. By the end of 2019 we'll see meaningful 5G network coverage in many major markets. As with 4G, this means that when major device manufacturers launch 5G smartphones, the foundation will be there for the technology to become a mass-market reality.

In the past, Apple's strategy with adding new cellular chipset technology (including WCDMA, HSPA, LTE, and LTE-A) has been to wait one year after other major vendors launch, in particular Samsung. Apple was able to wait because of its preeminent lead in the high-end smartphone market, and by doing so it helped it to maintain industry-leading margins.

But Apple's world is now very different compared to the one it faced when 3G and 4G technology started to become a commercial reality. Google and a reinvigorated Huawei are much more relevant in the smartphone market than when 3G and 4G were launched, while Samsung remains a potent competitor in the higher-end smartphone segments on which Apple has traditionally focused. And as we move towards 5G, Apple's smartphone competitors will only grow stronger.

Allied with its excellence and its leadership in design, usability, and brand value, Apple has stayed at or near the front of the smartphone technology race by adding cutting-edge, in-house designed features such as fingerprint and face recognition that meaningfully enhance the smartphone user experience. Meanwhile, other vendors have successfully competed using their own strengths – for example, Samsung with in-house screen technology and design, for example, Google with AI and integration with its services, and Huawei with premium hardware and camera capabilities. Their successes are a product of their own capabilities as well as Apple's relative weakness in some areas (e.g. AI assistants), and they also benefit from Apple's strategy of relying on design, brand, and hardware-software integration to delay offering some features and capabilities offered by rivals – for example, OLED screens and the latest chipset technology, both of which it sources from other companies.

For high-end consumers in today's smartphone market, where all devices look and feel increasingly similar (i.e. like iPhones), the question of which handset has the latest technology is increasingly important to their buying decisions. This is very much the case for the speed with which the device does things, including transferring content to and from the internet, which 5G will significantly improve on.

If 5G delivers on its promise and brings greater speeds and lower latency while maintaining the power consumption and reliability of 4G devices, consumers will want it, and if they can get it from other companies they'll reasonably expect it from Apple. With 5G, Apple will have to risk lagging in this key area if it waits, or take a hit on its margins and introduce it sooner than it did with previous cellular generations.

Appendix

Further reading

5G: Regional and Global Approaches to a Technology Step Change, GLB007-000092 (July 2018)

5G Service Provider Tracker: 4Q18, GLB007-000195 (January 2019)

5G: Key Market Developments 4Q18, GLB007-000196 (January 2019)

"iPhone Xs points to the service provider future with eSIM and Gigabit LTE support," GLB007-000133 (September 2018)

"5G is here – almost – with the launch of Verizon 5G Home," GLB007-000132 (September 2018)

"iPhone boosts eSIM sales to over half a billion by 2022," CES004-000054 (October 2018)

"Apple WWDC 2017: More tortoise than hare, Apple does not need to be first or biggest, just the best," TE0004-001180 (June 2017)

"Major US operators are aiming for different 5G goals," GLB007-000070 (May 2018)

Author

Paul Lambert, Senior Analyst, Europe

paul.lambert@informa.com

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