A disappointment which will sell well.

With discretion and confidentiality being concepts of the past, the forthcoming iPhone5, to be announced on September 12 and on sale September 21, has been the most leaked iPhone design ever, despite Tim Cook’s commitment to tighten up security. Here’s what we know:

• Same width as the iPhone 4S.
• Half an inch taller for 16:9 widescreen rather than 4:3. Largely useless.
• LTE 4G cellular, meaning AT&T can cease lying about 4G (my AT&T 4S says ‘4G’ when it’s ‘3G’).
• Thinner, owing to integration of touch sensors into the LCD panel.
• Better battery life, maybe as good as the competition.
• A smaller dock connector, just to make sure 50 million users of accessories get upset.
• Maybe an even better camera sensor to update the already excellent 8mp one in the 4S, the biggest update from the previous model 4. OVTI’s pop in share price and revenue predictions suggest this may be so; they make the sensor.
• The global Qualcomm comms chip to permit functioning on any cellular network, including China Mobile which has yet to sign with Apple. China Mobile accounts for 50% of Chinese cellphone users.
• A faster A6X ARM CPU.

Here’s what we likely will not see:

• Near Field Computing. NFC is the technology which will replace credit cards and drivers’ licenses, storing that data encrypted in the phone and transmitting it by a proximity wave to the reader in the retailer’s store. Or cop’s cruiser …. In an insightful piece, one of the best tech sites around, AnandTech, has concluded there is insufficient space inside for an NFC chip, further hampered by a reversion to a metal back, compared with the current glass one.
• A proper sized screen. Having sued and prevailed over Samsung’s copycat efforts, and rightly so, Apple is likely finding it hard to argue for the right-sized screen in Samsung’s Galaxy III phone. As regards those who damn Apple’s intellectual property efforts, they forget two things. Apple has paid its share of penalties for IP infringement. And how would these critics feel were it their IP which was being stolen?
• Biometric technology. Apple recently bought biometric security (fingerprint recognition, retina scans, etc.) AuthenTech for $356mm which brings with it the thrilling prospect that I will no longer have my credit card number stolen annually by Russian hackers. You will access your iPhone with your fingerprint, no more easily guessed passwords for thieves. The thieving sales clerk will no longer see your CC number. And, once licensed, customers of WalMart will be able to check out with a fingerprint which is an improvement over the ‘X’ they currently struggle to write on the credit card machine’s screen.

In a nutshell, if the above is right – and I pray it is not – the iPhone 5 is a useless 0.5″ longer than the iPhone 4S and represents little more than tinkering at the margin of the current design, while increasingly falling behind the best of the competition, stolen as many of their designs may be. 4G is nice for the 2% of the cellphone world which has access to it. Verizon 4G on my iPad3 is outstanding in the Bay Area, by the way. AT&T’s 3G on my iPhone 4S is anything but.

Yet despite that litany of disappointments, it will be a massive success, for several reasons:

• The Apple ecosystem. You can argue, correctly, about the dated and confusing design of iTunes, but a relatively stable iCloud and high integrity email and related applications not only tie in existing users but also attract those brutalized by Android and Windows.
• There is no earthly reason to think that Microsoft’s Windows 8, promising everything to everyone, will be any more successful than the disastrous Vista. iOS and the iPhone/iPad were in development 5 years (500 man years?). Why on earth would anyone think that Microsoft, famous for poor UIs and a cynical disregard for the user experience owing to long vested monopoly power, should succeed with an immature Windows 8 which tries to please both desktop and mobile users? Were I a gambling man I would bet that the Surface tablet will be the Sinker tablet before too long, having successfully upset all of MSFT’s traditional manufacturing partners (Acer, Asus, HP, Dell, etc.) who have had the carpet whipped out from under their feet by MSFT’s sudden decision to become a manufacturer. (Xbox was purchased and remains largely unchanged since, and making mice is not the same as making tablets).
• China Mobile. Apple will soon sign this carrier in China, one who accounts for 50% of China’s cellphone users. The new Qualcomm comms chip in iPhone5 will, for the first time, accommodate CM’s cellular technology. Sure, that does not mean 500 million new sales, but Apple is about profits not market share. Another 10 million at 45% profit margin will do nicely. That figures to $30 or 5% on AAPL’s share price.
• Pent up replacement/upgrade demand from iPhone4 owners who were disappointed by the marginal improvements – camera aside – in the iPhone4S.
• Vanity sales from Apple’s growing share in laptops, where users are introduced to the elegance and quality of Apple’s design work. As one example, the 2012 MacBook Air is an outstanding, attractively priced machine and the Retina Display 15″ MacBook Pro has the best laptop display in the business and will soon be joined by a 13″ model which will further grow laptop share.
• Continuing Apple supply chain dominance with long-term supply contracts signed up with key component makers, not least the three manufacturers of retina displays.

So while I expect the camera to be further improved in iPhone5, yet another nail in the point-and-shoot sector’s coffin, I will be waiting for iPhone6 unless I am significantly mistaken in what I wrote above.

As for Apple’s future, the company has lots of good things in the pipeline but the ones we know about are anything but innovative. The iPad Mini will clean up in the education market (OK, not in US public schools, which hardly qualify as education) at a $249 entry point, and will get no competition from the soon to be introduced Kindle Fire2, which will be heavily advertising supported to direct you to buy more stuff from Amazon.com. Teachers will likely not take kindly to their charges firing up their, err…. Fires only to be confronted with condom ads. Patent litigation will continue for the forseeable future and Apple will mostly prevail, setting back the thieves and forcing them to actually make something original. Everyone wins, but Apple wins first.

The Steve Jobs pipeline of innovative products is ending, so some really new things have to come along for Apple to maintain its torrid pace of growth. I expect that to continue for at least another year, but absent a fresh burst of innovation, the storm clouds will come closer. The replacement market is not a growth business, after all.

Disclosure: Long AAPL, QCOM, BRCM.