Who Apple Is Targeting With Its New iPhone SE

The low-cost iPhone SE could sell 30 million units, roughly 20% of all iPhone sales, according to one forecast.
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It's not the priciest phone of the bunch, but Apple’s new iPhone SE could wind up playing a starring role in the company’s sales this year.

Apple released the new iPhone SE just last month, and early signs suggest a healthy launch for the $399 phone, despite an unusually difficult environment for sales. Shares of Apple  (AAPL) - Get Report rose 1.50% on Wednesday at $302.01.

On a shareholder call last week, Apple CEO Tim Cook said that this year’s iPhone SE, an updated version of the iPhone SE released in 2016, has had an “outstanding” reception so far -- from two constituencies in particular.

“I have seen a strong customer response to iPhone SE, which is our most affordable iPhone. But it appears that those customers are primarily coming from wanting a smaller form factor with the latest technology or coming over from Android,” Cook said.

Based on an analysis of shipping times, TF Securities analyst Ming-Chi Kuo wrote recently that early iPhone SE sales were “better than expected,” while also cautioning that overall iPhone sales are likely to drop 20% to 25% in the current quarter. Loup Ventures’ Gene Munster also raised his sales outlook for the iPhone SE in late April, forecasting that the new model will account for about 20% of all iPhone sales over the next 12 months, equivalent to 30 million units.

Underscoring Cook’s comments last week, Apple is marketing the iPhone SE specifically to Android users. Its product page includes a section explaining why Android users should switch -- saying “life is easier with an iPhone” -- and giving details on phone trade-ins and how to transfer data to iOS.

The iPhone SE is smaller compared to other iPhones, and comes in a more limited range of colors and specs. But in recent years, Apple’s highest-end phones have not been the ones selling the most units. Apple’s iPhone XR -- which was touted as Apple’s “affordable” model when it was launched in 2018 was the best-selling smartphone in the world last year according to the research firm Omnia.

“iPhone SE will keep users who need to upgrade an older iPhone from considering Android,” said Andrew Moore-Crispin of the mobile operator Ting Mobile. “We've seen that people are willing to make a switch when the price differential between platforms is great when they're shopping for a new phone.”

A recent survey by Ting, which asked 3,000 people about their last smartphone upgrade, found that 22% switched to iPhone from Android, whereas only 6% made the reverse switch. Price -- not necessarily features -- is the primary motivating factor for many consumers.

Cook added on last week’s call that Apple is “very focused on the affordability point,” and described a few other measures Apple is taking to lower the “entry price” for an iPhone, such as trade-in programs. Retailers in China, a region that accounts for about 15% of Apple’s revenue, have also offered steep discounts on iPhones to boost demand.

If the iPhone SE winds up being a hit, it could soften the blow of an otherwise brutal selling season for smartphones and other consumer devices. iPhone sales account for approximately 50% of Apple's overall revenue. 

It also potentially onboards more consumers into the iPhone ecosystem of wearables, services and other products, and gives Apple an opening to keep them there long term.

Cook said that investors "shouldn't read anything into" Apple's recent moves to offer more affordable phones. But given the company's emphasis on its total installed base, and expansion into services, the benefits to expanding its overall market share are clear. 

"Apple is making product decisions to advance the long-term (win new customers with the less expensive SE and sell them wearables and Services in the future)," Munster wrote.  

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