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Why the iPhone 8 and iPhone 8 Plus Will Be Important for Apple Next Year

Apple's (NASDAQ: AAPL) iPhone 8 and iPhone 8 Plus are arguably far less exciting than the iPhone X. While the iPhone X includes a full-face organic light-emitting diode (OLED) display and an all-new aesthetic, the iPhone 8 and iPhone 8 Plus continue to use older liquid crystal displays (LCDs) and identical form factors to their predecessors.

The iPhone X also has an improved rear-camera subsystem compared to either the iPhone 8 or the iPhone 8 Plus, as well as a much more advanced front-facing camera with 3D sensing capabilities marketed by Apple as a TrueDepth camera. Despite all this, the relatively tame iPhone 8 and iPhone 8 Plus are still going to be very important to the iPhone business both this year as well as possibly next year. Here's why.

Image source: Apple.

Compelling lower-cost options

This year, Apple can market the iPhone X at a starting price of $999 while still letting users who want the latest iPhone technologies, such as the improved cameras and upgraded internals, to buy new devices (the iPhone 8 and 8 Plus) at familiar price points of $699 and $799.

Next year, I expect the iPhone 8 and 8 Plus to carry on serving the same role, but with a slight twist.

There's a good chance that next year's iPhone X will, once again, start at $999, and that the larger-screen iPhone X that's said to be coming will begin at an even higher price point. Apple is also said to be preparing a next-generation iPhone with a 6-inch LCD for next year, and since LCDs are generally cheaper than OLEDs, it seems likely that this 6-inch model is intended to be the entry-level 2018 iPhone.

However, I doubt that Apple would start the 6-inch LCD iPhone at the same $699 price point that today's iPhone 8 occupies, especially since generally reliable analyst Ming-Chi Kuo with KGI Securities recently indicated that Apple plans to equip all new 2018 iPhones with pricey TrueDepth cameras as well as full-screen designs.

Indeed, my expectation is that even the LCD iPhone that launches next year will start at between $749 and $799 for the base model.

Working under the assumption that next year's new iPhones will begin at $799 and run to something along the lines of $1,349 (this assumes a $1,199 starting price for the 6.46-inch OLED iPhone and an additional $150 for the higher storage tier), Apple will need compelling products at lower price points to satisfy those looking to spend less.

And that's where this year's iPhone 8 and iPhone 8 Plus should fit in.

In terms of key features -- display quality, camera features, processor speed, and so on -- the devices should still be very competitive at discounted price points. Moreover, the use of glass backs on the devices gives them a premium look and feel that could potentially offset the relatively large bezels of the devices compared to similarly priced Android-based competition. I expect the baseline iPhone 8 to get a price cut to $599 next year and the baseline iPhone 8 Plus to be cut to $699 once the 2018 iPhones are released.

Apple would then have a compelling product stack that smoothly spans a wide range of price points.

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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.

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