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Apple’s iPhone 5G will have to be more than 5G

Apple Inc.

AAPL 1.74%

is the master of upsell, but 5G could present the company with its biggest challenge.

The tech giant has an event scheduled for October 13, when it is widely expected to unveil this year’s iPhone range. Typically, the company hasn’t said anything about its plans for what would be the twentieth iteration of its iconic smartphone, not to mention the large-screen variants of the same models. But leaks and supplier reports have all confirmed that the next-generation 5G wireless standard will be included in at least some of this year̵

7;s projects, and Apple itself dubbed the event “Hi, Speed” in its announcement.

Almost all of the company’s competitors, including the largest,


—You already have 5G phones on the market. But most of the 5G action in the world took place in China, which accounted for more than three-quarters of 5G device shipments in the second quarter, according to Counterpoint Research. In the US, 5G coverage is still limited, even in major cities. This has so far hindered the spread. IDC estimates that 4.2 million 5G smartphones were sold in the United States in the first half of this year, about 7.5% of total domestic smartphone shipments during that period.

Apple is expected to increase it. Counterpoint analyst Jeff Fieldhack predicts that this year’s new iPhones will greatly increase the market share of 5G devices, resulting in those phones accounting for 20% of domestic smartphone sales by the end of the year. And several equity analysts have begun to redistribute the term “super cycle” used to predict strong iPhone cycles in the past, though not always accurately. Analysts expect total iPhone sales to increase 10% in Apple’s current fiscal year ending next September, after two consecutive years of declines, according to consensus estimates from Visible Alpha.

This in turn has fueled Apple’s stock, which has risen 59% so far this year, even after retreating from its September 1 peak. With more than 31 times earnings forward, the stock remains in its most expensive valuation range in over a decade.

Is a 5G iPhone worth it? Probably not, if that’s the only selling point. Comparisons of the past are problematic. The last major transition of the network to the current standard known as LTE occurred in 2010-12, when smartphones were still a rapidly growing business globally. Apple’s first LTE device was the iPhone 5, launched in late 2012. That device also sparked “super cycle” projections, even if the phone’s lower sales and profit margins haven’t lived up to the hype. Apple’s stock price had risen 65% that year prior to the iPhone 5 launch, and then dropped 24% in the rest of the year.

Smartphone buyers tend to be more motivated by improved features like screen sizes, better cameras, and longer battery life. The iPhone 6 cycle that began in late 2014 proved to be Apple’s best ever, thanks to the significant increase in display size that device provided. And last year’s iPhone 11 Pro models with their triple lens cameras turned out to be more popular than expected. Analysts believe those models accounted for 28% of Apple’s total iPhone sales volume for the fiscal year ended September, compared to 23% for the previous year’s top-of-the-line iPhone models, according to Visible Alpha.

The success of last year’s iPhones is actually another challenge for this year’s as smartphone buyers now tend to keep their devices for three to four years. Apple still has a solid fan base willing to line up for whatever the company turns up every year. Getting enough of them to justify a $ 2 trillion market value will be a tall order.

Write to Dan Gallagher at dan.gallagher@wsj.com

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