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Apple Inc. Takes a Bold Risk With iPhone SE

By Ashraf Eassa – Mar 23, 2016 at 3:30PM

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Apple aggressively attacks lower price points with smaller iPhone.

The iPhone SE. Image credit: Apple. 

Apple (NASDAQ: AAPL) finally went ahead and launched its widely anticipated 4-inch iPhone refresh dubbed the iPhone SE. The device is pretty much what everyone expected it to be; it combines the processing power, memory, and iSight cameras from the iPhone 6s, the wireless subsystem of the iPhone 6, and the external casing and display lifted from venerable iPhone 5s.

The "bold" and "risky" part of all of this is that Apple is offering the variant with 16 gigabytes of storage for just $399 and will sell customers one with a full 64 gigabytes of storage for $499. This has a very interesting implication.

Apple is basically selling a better phone than the iPhone 6/6 Plus for less
On the inside, arguably where it counts, the iPhone SE is a substantially better smartphone than either the iPhone 6 or the 6 Plus. It has significantly more processing power, packs in more memory, and contains a higher-resolution rear-facing camera.

Where the iPhone 6/6 Plus excel over the iPhone SE are the following:

  • Display quality: The iPhone 6/6 Plus use higher resolution displays with superior viewing angles and contrast ratio.
  • Display size: The iPhone 6/6 Plus offer significantly more screen real estate than does the iPhone SE.
  • Industrial design: The iPhone 6/6 Plus are thinner and arguably more "modern" looking designs.

Although many potential customers probably pay more attention to the above external/cosmetic features rather than on the processing power and features on the inside, a non-trivial portion of the iPhone-buying population will appreciate the relative value that the iPhone SE brings to the table specification-wise.

Apple may cannibalize, perhaps to a material degree, its older generation iPhone 6/6 Plus phones in the six month period or so that they occupy Apple's "mid-tier." 

An attempt to try to juice iPhone sales with a "value" product
The last time that Apple tried to launch a "value" product -- the iPhone 5c -- the device reportedly didn't do as well as the company had expected. Conversely, sales of the premium iPhone 5s performed better than expected, leading supply constraints in the company's first quarter of fiscal 2014 .

However, it's worth noting a couple of pretty significant differences between the iPhone 5c in late 2013 and the iPhone SE in early 2016.

First of all, the iPhone 5c packaged up the prior generation's internal components and camera subsystems in a less-premium plastic shell. Remember back then one of the key selling points of Apple's phones is that they were made out of aluminum and had a premium look and feel as a result.

The iPhone SE stands in stark contrast to the iPhone 5c. It comes in a nice metal casing, features top-of-the-line internal components, implements the same camera that the flagship iPhone 6s has, and comes with support for Apple Pay.

The iPhone SE also starts at $399 for the 16 gigabyte model and goes to $499 for the decked-out 64 gigabyte model. The iPhone 5c started life at $549 for the 16 gigabyte variant and went to $649 for the 32 gigabyte version.

The iPhone SE clearly provides a much better relative value to both Apple's own flagship products than the 5c did (some would, perhaps, argue that it's too close) and to the competition. Even with a small, fairly old display, the Apple A9 is arguably the most powerful mobile system-on-chip in the market today.

Apple has a good product here
I believe that the iPhone SE looks like a solid product that offers a tremendous amount of value for the money, especially relative to other members of the iPhone lineup. This looks like a great product with which to lure out folks in mature markets that simply don't want a larger iPhone as well as a solid tool with which to try to gain share in potentially more price-sensitive emerging markets.

The main risk that I see here is that Apple could very well see a substitution of sales of higher priced/higher margin iPhone 6/6 Plus phones in favor of the iPhone SE. 

I plan to place an order for one as soon as it becomes available and hope to have a full review of the device published in early April. Stay tuned!

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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