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Court documents show Apple knew iPhone's weakness: Screen size, prices

Internal Apple documents, revealed as part of the company's legal battle over patent infringement with Samsung, reportedly show Apple's own view of the iPhone's shortcomings.

According to documents submitted as court evidence and cited by Re/code, Apple knows exactly what is holding the iPhone back: small screens and high prices.

The most recent Apple-Samsung trial began in a San Jose, Calif., courtroom last week, and quickly turned into a game of finger-pointing between the two tech giants. Apple is suing Samsung for allegedly infringing on five patents, while Samsung has countersued, accusing Apple of copying Samsung features.

Presentation slides, shown at an internal Apple meeting in April 2013 and posted online by Re/code, noted that growth rates for the iPhone were slowing down, with the first three quarters of 2013 only showing a 46 percent increase versus 107 percent in 2010.

The slides noted that this was due to a higher demand for "less expensive and larger screen smartphones," which "we don't have."

Also, they said that Apple's competitors -- presumably Samsung and Android -- have "drastically improved their hardware" and spent "obscene" amounts of money on advertising. Apple also believed that cellphone carriers were capping iPhone sales, due to "unfriendly policies" and high "subsidy premium."

Several internal Samsung documents also stated bluntly that "Beating Apple is #1 Priority." A 2008 Samsung document credits the iPhone with "redefining the U.S. market dynamics," and states that "focusing on Hardware is a loosing [sic] proposition" for iPhone competitors.

The inside look at the inner workings at Apple, one of the most secretive companies in the world, lends credence to rumors have been swirling about plans for the iPhone 6. According to reports by the South China Morning Post, Apple is expected to roll out two versions -- with 4.7 inch and 5.5 inch screens -- in September.

When Apple unveiled the cheaper iPhone 5C and the more expensive 5S last year, the lower-priced phone was intended to help the company with sales in China and Russia. However, the change in the lineup was unpopular, as the phone was still relatively expensive.

Last month, CNET reported that China-based analytics company Umeng found that the iPhone 5C accounted for only 2 percent of iPhone sales in China, while the iPhone 5 and 5S combined for about 27 percent of the market.

The slides also noted that the smartphone market grew by 228 million units between 2011 and 2012. About 91 million of those sales were phones costing more than $300 and with screens larger than 4 inches, while 159 million were sales of smartphones under $300.

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