AFTER WEEKS OF rumors, no
one was surprised when Applerevealed its latest iPhone. The 4-inch iPhone SE is
essentially an iPhone 5s on the outside but with the more advanced guts of the
iPhone 6S on the inside. What is surprising is that, after going all-in on
bigger phones, Apple decided to go smaller again at all.
Turns out, Apple has plenty
of good reasons for pushing a smaller phone. Not least
among those reasons: a lot of people still want to buy them. At a time when
sales growth for the iPhone is leveling off, Apple looks like it’s aiming to
squeeze as many sales out of the market for its phones as possible.
During yesterday’s keynote
announcing the new phone, Apple vice president Greg Joswiak said that the
companysold more than 30 million 4-inch iPhones last year. That
may sound like a lot, but 30 million 4-inch iPhones out of 231 million total
iPhones sold by the end of Apple’s 2015 fiscal year only amounts to about 13
percent. And analysts are predicting that
annual sales of the iPhone SE could come in even lower—closer to 10 million to
15 million. That’s not exactly an optimistic projection, considering Apple has
still never reported a decline in iPhone sales.
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| A set of iPhone SE handsets are seen on display during a media event at Apple headquarters in Cupertino, California on March 21, 2016. JOSH EDELSON/AFP/GETTY IMAGES |
But Apple has lately become much more realistic
about nearing the end of its era of certainty—when the company could feel
absolutely confident that iPhone sales would grow quarter to quarter. The
company revised its guidance for iPhones downwards for the first time this
upcoming quarter, saying it expected sales by the end of March to fall to
between $50 and $53 billion, lower than the $55.5 billion expected by Wall
Street analysts. The introduction of the iPhone SE could be a smart way to help
tide Apple over until the rumored announcement of a new flagship iPhone 7 in
2017. In other words, the iPhone SE is all about diversifying Apple’s existing
product line—and why not choose diversify its most mindblowingly successful
product of all?
Premium Yet Affordable
To be sure, Apple has explored a similar path in the
past. When the budget-minded iPhone 5c was introduced in the fall of 2013,
Apple’s aim was to secure a foothold in the Chinese market, where cheap and
locally made Android phones, especially from homegrown manufacturers such as
Xiaomi and Huawei, were soaring in popularity. But sales of the iPhone 5c
lagged behind the iPhone 5s as Chinese consumers sought out the pricier model
that also carried premium cachet. After the iPhone 6 and 6 Plus were a smash
hit in the country, any remaining doubts of what kind of phones China wanted
from Apple seemed to be erased.
But Apple’s strategy with the iPhone SE looks markedly
different. “The iPhone 5c slapped on a plastic exterior that telegraphed
cheapness,” says Mark Hibben, a contributor to equity research service Seeking
Alpha. By contrast, the iPhone SE’s anodized aluminum case, which mimics the
color and styling of more expensive models, doesn’t send the same message,
Hibben says. “I think it has the right feature set to be an acceptable iPhone,
while still being affordable to manufacture, and affordably priced as a
result.”
This mix of premium yet affordable—the iPhone SE
costs $399 without a contract, or comes free with a two-year contract—should
help Apple tap into new segments of the market that it hasn’t yet reached. No,
$400 off-contract isn’t dirt cheap; the average price for an Android smartphone
was about $215 by the end of last year, according to Bloomberg.
But Ryan Reith, an analyst for market research firm
IDC, says the iPhone SE will still likely appeal to a wide range of buyers,
from price-sensitive consumers in Apple’s more mature markets, such as North America
and Europe, to higher-end shoppers in emerging markets such as India. The idea,
as Apple itself said during yesterday’s keynote, is to make a phone appealing
enough so that those who have never tried the iPhone before finally make the
jump into Apple’s world.
Supply Chain Lessons
Hibben says the iPhone 5c may have created another
problem for Apple on the backend—namely, working with a different material. The
company would have had to adjust its supply chain to include an iPhone model
with a plastic exterior, which may have eaten into the savings it might
otherwise have enjoyed from using a cheaper material. While engineering the
more expensive 5s may have cost Apple more to begin with, it now has the
knowhow to produce that design efficiently at scale.
Kyle Wiens, CEO of iFixIt, agrees, pointing out that
at one time, Taiwanese manufacturing company Foxconn had declared the iPhone 5
to be “the most difficult device” it had ever made. That’s not the case
anymore. “It’s always going to be easier for Apple to use existing supply
chains,” Wiens said. “By repurposing and reusing many components from the 5s,
Apple is certainly achieving cost savings.”
No, the iPhone SE won’t cure Apple’s slowing iPhone
sales growth. That will take something more dramatic—and probably bigger. But
at this point in Apple’s existence, even incremental growth is still
meaningful. Apple may not sell all the world’s smartphones, but it makes almost
all the profits. And the iPhone SE is one more way it can extract money from a
market that still craves something smaller and less expensive. “This isn’t
about market share, ultimately,” says Hibben. “This is about reaping most of
the industry’s profits—and I don’t think that’s going to change for Apple
anytime soon.”
Source: wired
