Editor's pick: Originally published March 11, 2016
If Apple's (AAPL) bet on a smaller, cheaper iPhone is right, the move could help turn around a worrying slowdown in iPhone sales.
The tech giant is expected to unveil a new 4-inch version of the iPhone, known as the iPhone SE, at an event on March 21. Pricing is unknown at this point, but KGI Securities analyst Ming-Chi Kuo expects the new iPhone to be priced between $400 and $500. By comparison, an unlocked iPhone 5s costs $450 and an unlocked iPhone 6 starts at $649, so this potential pricing strategy makes sense.
Jackdaw Research analyst Jan Dawson expects the new iPhone to help move the needle on Apple's sales, but it all depends on how it's positioned.
A lower-priced strategy would be more in line with what emerging markets are looking for, particularly countries like India, which Apple CEO Timothy D. Cook has called out recently as a place of intense interest and growth for Apple.
Aside from being the second-largest smartphone market in the world behind the only China, Cook also noted the demographics (the media age of India's population is 27) and economic growth as good signs for Apple. "It's a very rapidly expanding country," Cook said on the company's fiscal first quarter earnings call. "And I think the government there is very interested in economic reforms and so forth that I think all speak to a really good business environment for the future."
Research firm Counterpoint Research said India had a smartphone base of 220 million users by the end of 2015, up 15% over 2014 figures, making it larger than the U.S.
Apple's revenue in India in the quarter was up 38% year-over-year, with iPhone sales growing 76% over the same time frame.
In the most recent quarter, Apple sold 74.8 million iPhones, below Wall Street estimates and up just 0.2% year over year.
Essentially an updated version of the iPhone 5s, the iPhone SE (a name first reported by 9to5Mac's Mark Gurman), will come with a 4-inch screen and is expected to take the place of the iPhone 5s in Apple's iPhone lineup, which would leave it with the iPhone SE, iPhone 6 and 6 Plus and 6S and 6S Plus.
Apple's shares have taken a hit in recent months, as concerns about stagnating iPhone sales have crept up, with investors wondering whether Apple's market share has peaked. As of the end of the fourth quarter, Apple had 18.7% of the smartphone market, down from 19.7% in the fourth quarter of 2014, according to research firm IDC. IDC noted smartphone makers Huawei, Lenovo and Xiaomi all increased their market share year over year.
In addition to having a 4-inch screen, the new phone will come with the A9 and M9 chips, which were first introduced as part of the iPhone 6s and 6s Plus, last year, an event which TheStreet attended. The new phone is also expected to come with other features already available on newer iPhone models, including always on Hey Siri support, Live Photos, an upgraded 8-megapixel camera as well as Apple Pay.Apple is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio.
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A turnaround isn't expected this quarter, with Cook saying he thinks iPhone sales will decline in the upcoming quarter, which would be a first.
Interestingly enough, both Cook and CFO Luca Maestri were confident in their remarks on the fiscal first quarter earnings call that Apple's second quarter, which runs from January to March, would be the toughest year-over-year comparison for a number of reasons, perhaps hinting at the upcoming release of the iPhone SE.
Recent channel checks support that iPhone sales may indeed pick up in the second half of the year.
Credit Suisse analyst Kulbiner Garcha said to clients "the iPhone supply chain orders are indicating things may be better than feared," which would be the "the first positive movement since the Apple iPhone supply chain cuts began late last year."