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1 Reason to Celebrate Apple's Fun-Size iPhone

By Rick Munarriz – Mar 24, 2016 at 7:07AM

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The new iPhone SE is cheap, and that's not necessarily a bad thing.

Image source: Apple.  

It's easy to take shots at Apple (AAPL 0.96%) after the leading maker of consumer electronics introduced the iPhone SE earlier this week. Going back to the form factor of the smaller 4-inch size of the iPhone 5s may seem like equivalent of drawing a "Go back three spaces" card in the evolutionary game of tech gadgets.

The new smartphone -- available for preorder as of today and hitting the market a week from today -- is going to be the butt of easy jokes.

However, there's certainly going to be a market for the device that packs many of the features available of the current iPhone 6s model. That's important. Apple tends to keep the previous year's model around at a lower price point, but here it's offering a phone with many of the same features at the iPhone 6s. It will just come in a smaller size and at a much smaller price point.

The iPhone 6 SE starts at $399, considerably less than the 4.7-inch iPhone 6s at $649 or 5.5-inch iPhone 6s Plus model at $749. Shelling out $250 or $350 less for current-generation iPhone is going to be compelling. It will definitely cannibalize sales of the higher-priced options, but it's also going to expand its reach with non-iOS owners and first-time buyers that were thinking of going Android.

Things are different now. A couple of years ago, wireless carriers were willing to subsidize hundreds of dollars on a new iPhone just to lock someone into a two-year contract. It's why so many people associated current model iPhones with a phantom $199 price point. That's toast. The leading telcos now charge the full retail price for devices, letting folks pay them off in installments. This is a significant shift, and it could be a big reason why the appetite for iPhones has been waning lately.

Apple sold nearly 74.8 million iPhones during the holiday quarter, essentially flat with the 74.5 million it cleared a year earlier. With iPad and Mac sales sliding, the only reason that year-over-year revenue was up by a mere 2% for the period was the growth in Apple services and new categories, including its long overdue push into the smartwatch market.

With Apple stock closing lower last year -- the first time that we've seen that happen since 2008 -- it isn't a surprise to see the class act of Cupertino get aggressive here. It did little as the iPad and iPod started to fall from grace, but it can't afford to sit still with its iPhone empire meandering. You can call the Apple SE by any diminutive moniker you want, but you may as well also call it Sold. It will sell. It will push iPhone unit counts higher again, and right now that's a bit more important than what it will do to Apple's profit margins. 

Rick Munarriz 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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