According to reports, Apple (AAPL) is preparing for its largest initial production run of iPhones, placing a big bet on larger-screen phones to compete with similar offering from rivals such as Samsung.

The company is reportedly asking suppliers to manufacture between 70 million and 80 million units combined of two large-screen iPhones with 4.7-inch and 5.5-inch displays by December 30, according to people familiar with the matter.

Apple iPhones have kept their smaller displays, while rivals have rolled out bigger-screened “phablets,” which have become top sellers. Samsung, arguably Apple’s biggest rival, introduced its 4.8-inch Galaxy S models in 2012.

There have been rumors of production delays related to the larger display, as display makers struggle to improve the production of the larger 5.5-inch screens. Reportedly, the production is complicated because the displays are using in-cell technology, which allows the screens to be thinner and lighter by integrating touch sensors into the liquid crystal display and making it unnecessary to have a separate touch-screen layer. Additionally, the 5.5-inch iPhone screen would face an additional manufacturing complication if it uses a cover using sapphire crystal, a more durable but costly alternative to glass.

There have been signs that the smartphone market is starting to slow down. Earlier this month, Samsung warned that its earnings would fall for a third straight quarter as is faces a glut of unsold smartphones. Competition in emerging markets is pressuring margins, where its low- to mid-end smartphones are facing intense price competition from rival Asian handset makers.

Apple is feeling some pressure from investors after last year’s iPhone 5s launch was seen by many as a disappointment. For the quarter ending December 31, 2013, iPhone sales rose 7% from a year earlier, falling short of Wall Street expectations of a 15% increase.

However, Michael Walkley, an analyst at Canaccord Genuity, said there is “strong pent-up demand” for the iPhone 6 because customers have held off on upgrading from older iPhone models.

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Wayne Thorp
ABOUT THE AUTHOR:

Wayne A. Thorp, CFA, is editor of Computerized Investing and a vice president and the senior financial analyst at The American Association of Individual Investors (AAII). He is also the program manager for AAII's Stock Investor Pro fundamental stock screening and research database program and is on the advisory boards of AAII's Stock Superstars Report and Dividend Investing newsletters. He holds the Chartered Financial Analyst (CFA) designation and is a 1997 honors graduate of DePaul University in Chicago. Wayne's interests include stock screening, technical analysis and charting, social media and tech gadgets. However, in the summer he'd prefer to be hip-deep in northern Michigan's Manistee River fly-fishing for rainbow trout.

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