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The Next iPhone SE Could Be a Mid-Range Beast

By Evan Niu, CFA - Oct 4, 2019 at 8:20AM

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Apple has used this strategy before.

Rumors broke a month ago that Apple (AAPL 4.08%) is working on a new affordable iPhone model that is in the pipeline for early 2020. That device has been billed as a spiritual successor to the iPhone SE that the company released a few years back and discontinued last year. Apple put newer components into an old chassis, sold it at a mid-range price point, and called it a day. The Cupertino tech company is making a concerted effort to bring prices down, as evidenced by the iPhone 11's price drop.

The iPhone SE 2 is expected to use the same strategy.

Woman holding iPhone 8 at Apple Store

Image source: Apple.

iPhone 11's brains in an iPhone 8's body

Widely followed Apple analyst Ming-Chi Kuo of TF International Securities released a research note to investors this week (as reported by 9to5Mac and MacRumors), suggesting that the device will launch in the first quarter of 2020, echoing the prior report from the Nikkei Asian Review. The iPhone SE 2 will likely use the same design as the iPhone 8, which had originally been introduced back in 2014, while being powered by the same state-of-the-art A13 Bionic chip found in the new iPhone 11 lineup.

"The most significant hardware spec upgrade will be the adoption of the A13 processor and 3GB LPDDR4X," Kuo wrote. "iPhone SE2 will likely increase iPhone's market share and benefit Apple's promotions for service and content." That would be the exact same approach that the company used with the first iPhone SE. When it launched in early 2016, it used the A9 chip, Apple's newest and most powerful processor at the time.

iPhone SE 2 could be a compelling upgrade for customers who still use older models like the iPhone 6 and 6 Plus and may prefer that form factor over newer designs or don't care for the latest technology like Face ID, in Kuo's view. iPhone 6 and 6 Plus are not compatible with iOS 13, the newest version of Apple's mobile operating system, which Kuo also believes could spur upgrade activity. There are an estimated 100 million such users.

When Apple refreshed its iPhone lineup last month, it dropped the price of the iPhone 8 to $449. It now serves as the entry-level iPhone. The iPhone SE 2 would likely displace the iPhone 8, but it's unclear what price Apple may target for the device. The original iPhone SE launched at $399 before getting subsequently cut to $349. Selling the iPhone SE 2 at $399 would be an aggressive play to address mid-range buyers.

Alphabet subsidiary Google launched its mid-range Pixel 3a at $399 earlier this year, which immediately led to a spike in unit volumes. "With the launch of Pixel 3a in May, overall Pixel unit sales in Q2 grew more than 2x year over year," Google CEO Sundar Pichai said in July.

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