Will 5G Make Apple's iPhones Even More Expensive?

Apple (NASDAQ:AAPL) is expected to launch its first 5G-capable smartphones sometime in 2020. On Apple's most recent earnings call, analyst Katy Huberty asked CEO Tim Cook to comment on "how the company approaches a new technology like [5G], given the higher cost but also potentially significant benefit?"

The analyst also asked Cook to provide some insight into "how meaningful" the 5G transition will be "as a demand driver for upgrades in your iPhone installed base?"

Let's take a close look at Cook's answer, and from there, try to fill in the gaps that he left.

A "punt"

Cook largely declined to answer Huberty's question but offered some big-picture perspective.

"We look at a lot of things on different technologies and try to look at and select the right time that things come together and get those under products as soon as we can," the executive said. He also added that "from a cost point of view, there has been the -- technologies have had cost pressure over the last couple of years or so."

At the same time, he observed that both DRAM and NAND memory prices -- critical pieces of a typical iPhone's bill of materials -- "are going in the other direction," making it "difficult to project what happens next."

Beyond the punt

Apple has historically lagged its peers in terms of the adoption of the latest cellular technologies. The company, for example, didn't adopt gigabit LTE until late in 2018. That feature had been available in Android-based flagship smartphones since at least early 2017. Apple was also late in adopting 4G LTE technology.

There have been reports that Apple intends to launch 5G smartphones in the 2020 time frame -- presumably in the second half of 2020, since Apple usually launches new smartphones in the fall -- about 1 1/2 years after the first 5G smartphones launched. It's worth noting that the initial 5G smartphones seem to be limited-edition devices, with real high-volume runners coming in the first half of 2020. Apple still looks to be a little later than the competition -- at least in terms of high-volume deployments -- but it doesn't seem particularly bad.

Over the long term, Apple is going to need to balance a different equation than it had to before. In the past, the overall smartphone market was growing, which meant that Apple could grow unit shipments and revenue even if it was lagging on some key technologies and features compared to its competitors. With the market stagnant or even in decline, and with competition fiercer than ever, Apple may want to rethink this strategy.

I wouldn't be surprised to see Apple become more aggressive about adopting the latest technologies across the board such as modems, cameras, screens, and much more in a bid to not give its competitors as many obvious avenues of attack. Moreover, while Apple would likely incur higher product cost structures if it were to accelerate its adoption of new technologies, those technologies could allow the company to buoy or even grow its iPhone average selling prices.

This article originally appeared in The Motley Fool.

Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.