On March 8, Apple (AAPL -0.81%) announced the release of its next-generation version of the iPhone SE. But the news that a 5G version of the budget-friendly smartphone hasn't done much for the tech giant's stock -- at least not yet.
Shares of Apple have headed lower following the iPhone SE's launch. The stock has now lost nearly 15% of its value so far in 2022 for a variety of reasons, including surging inflation, which has led to a sell-off in tech stocks; the Federal Reserve's expected interest rate hikes; and the volatility caused by the Russia-Ukraine war.
One reason why the iPhone SE may have failed to impress Wall Street is because of its outdated design, or the fact that it comes with a single camera rather than the advanced camera systems of the iPhone 13 models. Also, the iPhone SE's starting price of $429 may have been a dampener for investors, as the device was expected to be priced at a lower point and help Apple breach $3 trillion in market cap.
Image source: Getty Images
Apple currently has a market cap of $2.5 trillion. The initial reaction to the new iPhone SE indicates that the device may not move the needle in a big enough way for the tech giant to gain another 20% and cross $3 trillion. However, the actual sales numbers could tell a much different story and help Apple easily cross that milestone. Let's see why.
The iPhone SE could be a boon for Apple amid surging inflation
Inflation in the U.S. accelerated in February and hit 40-year highs on account of an increase in gas prices and food and housing costs. The 7.9% year-over-year increase in the consumer price index pointed toward an acceleration over the 7.5% increase seen in January 2022. The conflict in Europe is likely to lead to a further increase in inflation, as sanctions on Russia are expected to lead to higher prices of gas and other commodities.
The rising inflation is likely to cut into household budgets and lead consumers to reduce their spending on discretionary items. This is where the iPhone SE could come into play, as it gives consumers an option to buy a 5G iPhone at a pocket-friendly price. The average selling price (ASP) of a smartphone in the U.S. last year stood at $557 for consumers, up from $549 in 2019.
The increase in smartphone ASPs can be attributed to 5G smartphones that are priced higher than their 4G predecessors. According to IDC, 5G smartphones had an ASP of $643 last year, up 1.7% over 2020. So the $429 starting price point of the new iPhone SE is a pocket-friendly way for customers to get into the 5G ecosystem amid surging inflation and save money.
What's more, the new iPhone SE contains Apple's latest A15 chip, which also powers the iPhone 13. Not surprisingly, third-party testing indicates that the iPhone SE can give its more expensive sibling a run for its money when it comes to performance, which could make it an ideal pick for consumers looking to buy a powerful 5G device on a budget.
The device could also attract customers who don't need cutting-edge displays or advanced camera systems. For instance, gig economy workers such as cab drivers, online marketplace vendors, and food delivery partners, among others, looking to upgrade to the latest wireless technology standard are likely to find the new iPhone SE as an enticing upgrade.
On the other hand, the Bureau of Labor Statistics estimates that the cost of smartphone connectivity for low-income households is four times that of high-income households. The high ASPs of 5G smartphones could pinch gig economy workers and low-income households during these times.
It is also worth noting that the rollout of 5G networks has accelerated the smartphone upgrade cycle. As per third-party estimates, the average age of a smartphone in the U.S. is expected to drop to 2.49 years in 2025 from 2.96 years in 2019. All of this indicates that the new iPhone SE has arrived at a good time and could help Apple increase its iPhone installed base significantly.
The device could clock solid sales this year
Daniel Ives of Wedbush Securities estimates that the new iPhone SE could move 30 million units this year, though he also points out that his forecast is on the conservative side. So assuming the starting price of $429, the iPhone SE could add at least $13 billion to Apple's revenue this year.
Analysts currently expect Apple's revenue to increase 8% in fiscal 2022 to $396 billion. The new iPhone SE's projected sales could send the company's top line to nearly $410 billion based on the above estimate. Multiplying that by Apple's sales multiple of 7.3 would translate into a market cap of nearly $3 trillion, but investors shouldn't forget that stronger sales numbers of the iPhone SE could help it easily become a more valuable company.
