Analysts get the iPhone SE, but aren’t sure it’ll succeed

Among the many announcements made by Apple during Monday’s launch event, the new 4-inch iPhone SE was probably the most important. Targeted at the 35% of Apple users who’ve stubbornly stuck with 4-inch devices, the SE is essential an iPhone 6 stuck in an iPhone 5s’ body. It’s interesting that Apple is sticking premium internals in a small device at a time when most other smartphone makers have abandoned it, but will it work out for the Cupertino-based giant?

With the iPhone SE, tech analysis firm IHS says, Apple is choosing to aim at an underserved segment of consumers that prefer small screen smartphones and have been reluctant to upgrade. And as Apple’s competitors have chosen not to target the premium compact smartphone market, it can swoop in and eat up the competition.

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According to IHS, the iPhone SE increases the differentiation of the iPhone portfolio from Samsung, LG and other Android smartphone makers because it offers high-end smartphone experience and camera in a compact design. By contrast, all of the leading Android smartphone makers choose to pair their compact smartphone designs with slower processors, slower LTE network support and lower performing cameras.

The sole Android smartphone maker to persist with premium compact designs, Sony, has moved away from this approach with its just announced X series model because all three upcoming models offer a relatively large five-inch screen.

The challenge in 2016, IHS says, is how to continue iPhone momentum when the year on year comparisons will be made with the Cupertino-based giant’s exceptional 2015 iPhone performance. A year ago, Apple secured an enormous uplift in iPhone models because the shift to the larger screen format iPhone 6 and iPhone 6 Plus expanded the appeal of the iPhone to consumers who had previously only been able to buy a large screen smartphone from an Android smartphone maker.

Not about the cost

The important thing to remember about the iPhone SE is that it’s not a cheap, or emerging markets, phone. It’s designed to provide a premium experience in a form-factor that a third of Apple users prefer.

iPhone SE buyers will now enjoy Apple Pay, access to the very best latest apps and games, and so will increase the addressable market for Apple’s partners and drive Apple’s ecosystem forward. One area where Apple has saved costs is one the LTE antenna, where it’s included only category 4 LTE support, rather than the faster category 6 in the iPhone 6S, or the category 9 in some of the latest competitor flagship models.

According to IHS, Apple will hope this return to a compact iPhone, close to the iPhone’s origins, will cause a similar boost to iPhone shipments from the new format.

A sales decline?

The real test of whether the iPhone SE really is a good idea, will be how many units Apple manages to shift. And while IHS understands the thinking behind the iPhone SE, it doesn’t think it’ll really give Apple much sales momentum.

In fact, its expects iPhone shipments to decline in 2016 by seven percent year on year.

As IHS sees it, there are two main ways Apple could boost 2016 iPhone shipment volumes:

1. Launch an iPhone 7 early, for example in June. Accelerating the introduction of the next generation iPhone from September to June means there would be three months more for the new unit to be on sale.
2. Offer a dramatically improved iPhone 7 design. Like all smartphone makers, Apple is now competing with the active installed base of smartphones in use now and must persuade consumers a new model is significantly improved on their existing smartphone.

To be clear, the investment firm doesn’t think the SE is a bad phone, far from it. But, it says, the iPhone SE will not change the market trajectory for the iPhone.

“Like all smartphone makers,” IHS says, “Apple must find ways to trigger all current smartphone owners to upgrade from their ‘good enough’ existing smartphones”.

The iPhone SE, it says, will help to do this for a part of the installed base, but Apple needs bigger bolder ideas to drive a significant uplift in iPhone shipments and accelerate the upgrade cycle.

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