What does the turning point year for iPhone mean for the Apple supply chain?

Apple's first truly AI smartphone will be launched next year, marking a transformation not only in the global smartphone market but also in Apple's supply chain.

On December 3rd, Nomura researcher Anne Leet's Asia technology team released a research report indicating that the iPhone roadmap is expected to undergo a historic turning point in 2025.

Nomura stated that this conclusion is based on multiple prospects. Firstly, the iPhone 17 series, expected to be released in the second half of next year, will be the first iPhone built on AI hardware, carrying significant historical importance. Secondly, the iPhone SE 4 is expected to launch in March-April next year, likely becoming Apple's "entry-level" model, catering to low-end demand.

Based on this, Nomura believes that Apple may readjust its product line, for example, changing the annual new product combination from "two low-end iPhones + two high-end iPhone Pros" to "three regular iPhones + one special iPhone," such as the three regular models of 17, 17 Pro, and 17 Pro Max, along with a special model like the iPhone 17 Air/Slim, or a foldable phone that may be launched by the end of 2026-2027.

How to Expect the iPhone 17 Series?

Since Apple introduced Apple Intelligence at the WWDC conference in June 2024, a new chapter for AI-driven Apple devices has begun.

However, Nomura believes that given the long design cycle of Apple products (usually at least 1.5-2 years), the iPhone 16 series launched this year has not fully adapted to AI applications in terms of hardware. The iPhone 17 series, expected in the second half of next year, may be the first true Apple AI phone, which means the iPhone 17 series will feature a more powerful processor, larger memory, bigger battery, and better heat management.

Specifically, Nomura believes that the iPhone 17 series and iPhone SE 4 may have the following key changes in hardware:

Display: The iPhone 17 series screen size will upgrade from 6.1 inches to 6.3 inches.

Chip Processor: Apple may use TSMC's N3P process to produce the A19 and A19 Pro application processors, which will be applied to the iPhone 17/17 Air and 17 Pro/17 Pro Max, respectively.

Memory: The iPhone 16 series has been upgraded to 8GB to meet the minimum requirements for AI functionality, and the iPhone 17 series is expected to maintain this memory capacity, with Pro models further increasing to 12GB.

Heat Management: With the enhancement of AI computing power, heat dissipation becomes more important. In addition to the conventional use of graphene heat sinks, Apple may add a Vapor Chamber (VC) for the 17 Pro and Pro Max to enhance heat management, and may also reduce the use of packaging materials (such as glass and titanium). **

Shell and back panel glass: It is expected that the 17 Pro and Pro Max may change the body material from titanium alloy to aluminum alloy, as the latter has better thermal conductivity and lower costs. Apple will also reduce the size of the back panel glass to only cover the wireless charging area, exposing the upper and lower areas of the aluminum body for heat dissipation.

For the 17 Air, Apple may adopt a titanium alloy frame/shell to achieve a lighter weight and a sturdier structure to accommodate a thin and light design.

Modem: Apple may use a self-developed modem on the iPhone SE 4 and iPhone 17 Air, and use a self-developed WiFi chip in the iPhone 17 series (the SE 4 may still use Broadcom WiFi chips).

Camera: The periscope camera of the 17 Pro is expected to be upgraded from the current 12-megapixel, supporting 5x zoom, to 48-megapixel, supporting 8x zoom, while the front camera will be upgraded from the current 12-megapixel to 24-megapixel.

In addition, it is expected that Apple will first replace the diffraction optical elements (DOE) in Face ID with metal lens optical elements (MOE) in the second half of next year.

Battery: The iPhone 17 series, especially the iPhone 17 Air, will use more fine lines, more layers, and larger area FPCB (Flexible Printed Circuit Board).

Mainboard: Apple has been developing thinner, lower-loss mainboard technology for the past 2-3 years, one of which involves using thinner fiberglass cloth in the CCL (substrate) to reduce mainboard thickness and transmission loss, but it is uncertain whether this will be applied in the iPhone 17 series.

What does the supply chain mean?

What impact will the potential hardware changes in the aforementioned iPhone 17 series models have on the supply chain?

Nomura believes that due to the fewer models using titanium alloy in the shell, this will dilute the value of metal shell manufacturers, and the reduction in the size of the back panel glass for the Pro series will also weaken the value of related manufacturers.

In terms of cameras, Nomura believes the impact on the supply chain will be minimal, but it is a positive for manufacturers like Sony that produce CMOS image sensors (CIS).

Since both DOE and MOE are manufactured by TSMC and its subsidiaries, it is expected that there will be no impact on the supply chain. The report adds that replacing DOE with MOE is likely to pave the way for more transformative innovations by 2027.

Regarding batteries, the higher demand for fine line multilayer FPCB may lead to supply shortages. Additionally, as Apple advises EMS (Electronic Manufacturing Services) manufacturers and specialized SMT (Surface Mount Technology) manufacturers to gradually take over the SMT work of FPCB manufacturers to reduce costs and geopolitical risks, Nomura believes this may lead FPCB manufacturers to focus on FPCB bare board manufacturing, which has a lower ASP but higher profit margins