AAPL Apple Inc

By Tripp Mickle 

Apple Inc. on Wednesday introduced a lower-priced iPhone with a fingerprint sensor and older exterior design, as the tech giant looks to revitalize its biggest franchise by targeting a broader group of potential buyers.

The new iPhone SE, which starts at $399, is the lowest-priced smartphone the company has offered since 2018, when it discontinued a previous low-end model with the same name. It is $50 cheaper than its previous least-expensive smartphone, the iPhone 8. The pricing reflects an effort by Apple to reach new customers in places like India and persuade existing iPhone owners who are more price-sensitive to upgrade at a time when smartphone sales have slowed world-wide. The move reflects a shift for Apple, which has largely raised prices to compensate for shrinking unit sales after annual iPhone shipments peaked in 2015.

The SE, launched amid a global economic shock driven by the coronavirus pandemic, is one of the first smartphones the company has revealed with a press release rather than one of its flashy product showcases. Apple had been planning an understated product introduction prior to the pandemic, people close to the company said. Last month, it released updated versions of its iPad Pro and MacBook Air with news releases, as well.

Apple said the new phone will include a 4.7-inch screen and come equipped with the same processor in high-end phones. It will be available for preorder Friday. The majority of Apple's retail stores remain closed and its Silicon Valley workforce continues to work remotely, measures taken last month to curtail the virus's spread.

The SE faces a host of challenges. It lacks a 5G modem at a time when that new generation of wireless technology is gaining traction, particularly in China. Its starting price is more than double the average selling price of smartphones in India, a major growth market. And it is launching at a time when consumer demand has emerged as a huge unknown amid a sharp economic downturn sweeping the world.

Even so, some analysts see the new iPhone model succeeding because about 20 million to 30 million customers world-wide own a previous SE model, which was first unveiled in 2016 and discontinued a little more than two years later. Many of those users prefer smaller phone -- that model has a 4-inch display -- and Apple has given them an option to upgrade, according to Counterpoint Research, which analyzes the smartphone market.

Maintaining iPhone customers has assumed greater importance as Apple shifts its focus from selling more devices to increasing the sale of software and services across its devices. The company still relies on iPhones for more than half of total sales but last year increased revenue from services, such as streaming music subscriptions and app store sales, by 16% to $46 billion.

The success of the SE hinges largely on how the pandemic has affected consumers world-wide. In the U.S., Apple's largest market, j obless claims have soared to historic levels. In China, its second-most important market, business is slowly rebooting after a lockdown idled the world's factory floor. Foxconn Technology Group, Apple's largest contract manufacturer, expected its production to return to normal last month.

The coronavirus has disrupted Apple's plans for the SE. Analysts said China's shutdown in February delayed the product's launch from March to April because of factory closures that disrupted production. Economic uncertainty later led many of those analysts to slash sales projections for the device, with Susquehanna International Group now expecting Apple this year to ship 32 million units, down from 40 million before the outbreak.

Still, Apple was fortunate to be developing and launching the SE amid the pandemic rather than another iPhone model, said Wayne Lam, a smartphone analyst with market researcher Omdia. He said it was easier to assemble because it uses many of the same components as predecessors, and its lower price point makes it more appealing to people looking to control costs amid economic hardship.

"This low price provides Apple some breathing room and really stretches their market," Mr. Lam said, noting that iPhones now range in costs from $399 to $1,450.

The lack of 5G will make the SE a tougher sell in China, which is ahead of other markets in building out infrastructure, said Neil Shah, an analyst with Counterpoint Research. He said it also will make it a tougher sell in some parts of India and Europe, where Chinese smartphone makers are expected to introduce 5G phones soon with a starting price of $350.

In India, the SE's price tag is more than double the $180 average people spend on smartphones, Mr. Shah said. Such high prices have capped Apple at a 1% share of India's smartphone market, according to Counterpoint, which estimates two million iPhones were sold in India last year.

"It's launching at the worst possible time in India," said Mr. Shah, noting that India has closed retailers and limited e-commerce until early May because of the virus.

The phone packs other risks for Apple. The lower price of the company's previous iPhone SE model, which launched in 2016 for $399, was a drag on Apple's gross margins, a closely watched measure of profitability reflecting the percentage of revenue remaining after manufacturing costs.

Apple last year l owered the price on its most popular iPhone model by $50, countering three consecutive years of price increases. Strong demand for the iPhone 11, priced at $699, drove smartphone sales up 8% from a year earlier to nearly $56 billion during the quarter ended in December.

The SE's faster processor and improved camera have the potential to aid Apple's services business. The performance improvements over older iPhone models will encourage people to download more apps and take more photos, which they could pay to store on Apple's iCloud servers.

"With services up and running, Apple is giving up their sacred business model focused only on charging the highest price possible," said Omdia's Mr. Lam. "They're trying to disrupt themselves before others disrupt them."

Write to Tripp Mickle at Tripp.Mickle@wsj.com

(END) Dow Jones Newswires

April 15, 2020 11:54 ET (15:54 GMT)

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