Lower-cost device aims to attract price-minded customers but
economy creates uncertainty
By Tripp Mickle
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (April 16, 2020).
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 news 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 a 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,
jobless 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 lowered 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 16, 2020 02:47 ET (06:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
Apple (NASDAQ:AAPL)
Historical Stock Chart
From Mar 2024 to Apr 2024
Apple (NASDAQ:AAPL)
Historical Stock Chart
From Apr 2023 to Apr 2024