Apple iPhone 5: Suppliers Reportedly Readying Chips, But Device Could Face Weaker Demand Due To Upgrade Cycle

Despite swirling rumors and speculations about a number of new features that are expected to be included in the next generation Apple iPhone, many people are still skeptical about the inclusion of each and every one of them. This skepticism is indeed sensible given that the Cupertino tech giant is known to keep everything under wraps, and rumors preceding its product launches generally originate from hit-and-miss sources.

However, with the new iPad having the 4G LTE technology, the consensus seems to be that the sixth generation iPhone, presumably called the iPhone 5, will be Apple's first smartphone to sport a 4G LTE chip. And according to a latest report that surfaced Friday, chip vendors including Qualcomm and Broadcom are preparing production to supply Apple with their solutions for the upcoming iPhone iteration.

Taiwanese website DigiTimes reported, citing industry sources, that chip vendors including Qualcomm, Broadcom, STMicroelectronics, NXP, Texas Instruments (TI) and OmniVision have started stocking their solutions for the next-generation iPhone, which are expected to hit the market later this year.

Qualcomm and Broadcom are producing 4G and Wi-Fi chips using a 28nm process at Taiwan Semiconductor Manufacturing Company (TSMC), indicated the sources, adding that OmniVision is currently also seeking capacity at TSMC's 12-inch fab, resulting a tight production capacity for the foundry's 28nm process, DigiTimes reported.

Last week, KGI Securities analyst Ming-Chi Kuo said in a note to clients that the next iPhone would feature a slimmed rear camera. Though the back camera, re-branded as iSight with iPhone 4S, will still be 8 megapixels, Apple would increase aperture from f/2.4 to f/2.2 to reduce camera module height by nearly 0.5 mm, iDownloadBlog reported.

Kuo said that the camera in iPhone 5 would be the first-ever slimmed rear camera of all iPhones that would help Apple's engineers achieve the desired thinness of the next iPhone.

The iPhone 5 rumor-mill was also spiced up recently thanks to the leaked iPhone 5 metal backplate. It was followed by an abundance of claims from insider sources that the part was indeed real. The claimed iPhone 5 leaked parts did point to a largely familiar form factor, but the most important facet to note was the longer display, increasing the ever-present 3.5-inch measurement to the 4-inch mark, also altering the aspect ratio.

Rumors say that the features most likely to be incorporated in the upcoming iPhone model include a 4-inch Retina display, an A5X Variant chip, 1GB RAM, iOS 6, 4G LTE technology, Near Field Communication (NFC) technology, improved Siri, liquidmetal casing, an 8 megapixel (or even higher) rear camera, a 2 megapixel front-facing camera for video chatting and a much-improved battery life.

Upgrade Cycle Could Affect iPhone 5 Demand

Regardless of the enormous hype, Apple's next iPhone could end up facing serious competition from its own predecessor, the iPhone 4S, that could further affect its demand.

BTIG analyst Walter Piecyk wrote in a recent research note that millions of current iPhone 4S owners in the U.S. and abroad won't be eligible for fully subsidized upgrades once the next-gen iPhone launches this fall as they are locked into wireless service contracts.

Will iPhone 4S users be willing to spend extra to get an early iPhone 5 upgrade? As relayed by Boy Genius Report, Piecyk's note reads:

For over a year, AT&T has enabled its customers that are 6 months into their contract to pay $250 to obtain an early upgrade. This would effectively enable the customer to buy the basic level iPhone early for $450 rather than wait the full 21 months to reduce that price to $200.

However, Piecyk noted that AT&T hadn't found this offer very interesting to its customers, who wait till the day they are eligible before upgrading with the full subsidy.

According to him, AT&T's chief executive Ralph de la Vega does not expect customer interest in this early upgrade offer to increase notably with the expected launch of a new iPhone later this year, when we estimate that the vast majority of AT&T iPhone customers will not qualify for an upgrade.

iDownloadBlog pointed to a report by Asymco analyst Horace Dediu, in which he estimated that half of iPhone buyers in the U.S. are repeat customers. Assuming 90 percent upgrades for two-year old purchases, Dediu predicted a total of 90 million iOS device sales to existing users in 2012.

Thus, if the next iPhone ends up being a mere evolution, without any major industrial design renovation, there are chances that Apple's own loyal customer base could act like a double-edged sword, and the new iPhone 5 could pay the price for it.

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