Editors' pick: Originally published March 9.
This column originally appeared on March 9 on Real Money, our premium site for active traders. Click here to get great columns like this.
Apple (AAPL - Get Report) has long faced a tricky balancing act when it comes to selling cheaper iPhones. With manufacturing costs for older and/or less advanced models likely in the $200 range or below, the company can easily sell such iPhones at lower price points while still turning a profit, and in doing so take share from mid-range Android rivals. But when a company is selling over 200 million phones annually at an average selling price (ASP) well north of $600, it's hard to blame it for being cautious about how much it moves down-market, given the risk of potentially cannibalizing sales of pricier models.
A few trends, however, make it worth Apple's while to expand its mid-range lineup, at least in parts of the world where average incomes are lower. Particularly with the iPhone 8 on the way.
The 4.7-inch iPhone 6, which (along with its 5.5-inch sibling) was discontinued last September in tandem with the iPhone 7 launch, has been re-launched in Asia. For now, the phone has only been spotted in China, India and Taiwan, but it's not hard to imagine additional markets being added. Apple is only selling a 32GB iPhone 7 model -- those wanting a 4.7-inch or larger iPhone with more storage will have to pay up for a 6S or 7. It's also for now providing just one color for each country: Gold in China and Taiwan, and Space Grey in India.
Amazon's Indian site currently sells the 32GB iPhone 6 for just 30,000 rupees ($450). That's just slightly above the 27,679 rupees ($415) charged for a 16GB 4-inch iPhone SE, and much less than the 41,000 rupees ($615) charged for a 32GB 4.7-inch iPhone 6S.
As others have noted, Apple carried out similar revival acts for the iPhone 4 and 4S a few years ago. But both of those phones had tiny 3.5-inch displays; this is the first time that an iPhone with a decent-sized display has been re-launched in such a manner.
Apple's move arguably says something about the limits of what the iPhone SE can accomplish in emerging markets. Though having seen some uptake among mid-range phone buyers and those still partial to a smaller form factor, the fact that the smartphone is the sole computing device relied upon by many emerging market consumers makes a lot of them more partial to a larger display. And there's now no shortage of compelling mid-range Android phones with large displays -- see, for example, the ZTE Axon 7 or the OnePlus 3.
It looks as if the launching of such phones by a slew of Chinese Android OEMs has weighed on Chinese iPhone sales in recent quarters. IDC estimates Apple had 9.6% 2016 Chinese smartphone share via 44.9 million shipments, down from 13.6% in 2015. In spite of the iPhone 7 launch and strong MacBook, iPad and App Store sales growth, Apple's mainland Chinese revenue was up just 6% in constant currency in the December quarter, and flat on a reported basis.
A 4.7-inch mid-range iPhone should strengthen Apple's Chinese hand. It should also help out in India, where the nominal per capita income is about one-fifth of China's and Apple still isn't a top-5 smartphone vendor. And if Apple can have such an phone manufactured at the Indian iPhone plant contract manufacturer Wistron is reportedly looking to set up -- if not the 32GB iPhone 6, then a comparable iPhone 6S next year -- it would further improve its mid-range competitiveness, since locally-manufactured phones aren't subject to the tariffs (generally 10% to 12%) faced by imports.
Meanwhile, the fact that Apple has been able to keep growing iPhone ASPs has to give the company some confidence that most high-end phone buyers will continue opting for newer models. With strong demand for the 5.5-inch iPhone 7-Plus ($769 U.S. starting price) providing a boost, iPhone ASP rose by $4 annually in the December quarter to $695, in spite of the SE's launch earlier in 2016.
With the average consumer now spending several hours per day on his/her smartphone, it's easy to grasp why more affluent consumers (whether in developed or developing markets) remain willing to pay over $600 to get a flagship Apple, Samsung or (to some extent) Google phone, even though many quality mid-range devices are available. The ability of many of these consumers to pay via installment plans also doesn't hurt. And with regards to Apple in particular, it can hold high-end consumers over with the promise of (or rather, tons of rumors about) a 5.8-inch iPhone 8 with a curved OLED display and novel 3D-sensing technology launching in September.
iPhone 8 anticipation will, of course, likely depress high-end iPhone sales over the next few months. An expanded mid-range lineup might just pick up some of the slack.