Apple (AAPL 2.48%) is holding its spring event on Tuesday, March 8, and the tech giant is expected to announce several new products.
The new products may include updated MacBooks, a new iPad, and an updated version of the company's entry-level smartphone -- the iPhone SE -- which is expected to sport 5G wireless technology this time along with Apple's latest A15 Bionic processor and an improved camera system. The upcoming iPhone SE is a hotly anticipated device that many predict will sell millions of additional units to a broader range of customers.
A big reason for that optimistic outlook is that Apple is expected to price the device quite competitively. Let's look at why the upcoming iPhone SE 5G could be a runaway hit for Apple.
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The new iPhone SE could be priced enticingly
The consensus in the discussion groups monitoring Apple's supply chain says Apple will start the pricing of the 5G-enabled iPhone SE at a mouthwatering $300. There are other entry-level price points being discussed as well, with J.P. Morgan analyst Samik Chatterjee estimating that the average selling price (ASP) of the device could range between $269 to $399. Chatterjee's estimate, however, is after accounting for trade-in values from older phones.
At the other end of estimates, Dan Ives of Wedbush Securities said he thinks that Apple will stick to the $399 price point that the iPhone SE has historically carried. Even if Apple starts the device's price at $399, as it has done before, it could be a runaway hit as the price would sit in the sweet spot of the ASP of 5G smartphones.
Apple could hit the sweet spot
According to an estimate by International Data Corp. (IDC), the average price of a 5G smartphone in 2021 stood at $643, an increase of 1.7% over the prior year thanks to the successful sales run of the iPhone 12 and the iPhone 13. The 5G-enabled iPhone 12 mini and the iPhone 13 mini had starting prices of $699, indicating that Apple enjoyed strong pricing power that increased the overall market's ASP.
However, IDC forecasts that 5G smartphone ASPs will decline over the next few years as cheaper devices enter the market, hitting $416 by 2025. So, Apple would be doing the right thing by introducing an entry-level 5G smartphone that's expected to sit at a lower price point compared to the overall 5G smartphone space.
That's the reason why it won't be surprising to see Apple's next iPhone becoming a blockbuster on the sales front.
Terrific sales numbers could be in the cards
J.P. Morgan analysts estimate that Apple could sell 30 million units of its upcoming iPhone SE this year. However, the investment bank points out that the device has the capability to attract 1.4 billion users of low- to mid-range smartphones from the Android ecosystem as well, which could help the iPhone SE's sales boom past analysts' expectations.
Additionally, investors shouldn't forget that 5G smartphone sales are likely to keep heading higher in the coming years. According to market research firm TrendForce, 660 million 5G smartphones will be shipped in 2022, accounting for 47.5% of overall smartphone shipments. By 2025, IDC estimates that 5G smartphone shipments could exceed 1 billion units annually out of overall smartphone shipments of 1.5 billion.
Strategy Analytics estimates that Apple controlled 31.1% of the 5G smartphone market in 2021. If Apple can hold on to this share through 2025, thanks to devices such as the iPhone SE, its annual iPhone shipments could easily jump beyond 300 million units. For comparison, Apple expects to ship 243 million iPhones this year.
Apple's iPhone shipments could increase by 25% over the next three years. This bodes well for the company, as it sold $71.6 billion worth of iPhones in the first quarter of fiscal 2022, up 9% over the prior year. It is also worth noting that the iPhone is its biggest source of revenue, accounting for 58% of the company's top line last quarter.
Healthy iPhone sales growth should be a tailwind for Apple's revenue and earnings growth in the long run and expand the company's high-margin services business by bringing more users into the iOS ecosystem. In all, the success of a 5G-enabled iPhone SE could supercharge the tech giant's growth in the long run, as Apple might hit gold with the device on account of competitive pricing.
