This week Apple announced the launch of the second-generation iPhone SE, a brand new, $399 device with a design and feature set that runs counter to just about every current trend in the smartphone industry. And Apple is likely to sell a ton of them, as this may turn out to be the right product, at the right time, for an awful lot of people.
Next-Generation Internals; Comfortably Familiar Body
Apple built the new iPhone SE upon the chassis of the iPhone 8, but it includes fresh internals, including the A13 Bionic processor, the same processor it shipped in its high-end iPhone 11 Pro last year. That alone makes this phone noteworthy, as that chip enables a list of next-gen capabilities around photography, AI, AR, and other technologies. Apple also added WiFi-6 and gigabit LTE, dual sim with eSim, wireless charging, and fast-charge capabilities. This list of features ensures that anyone who upgrades from an iPhone that’s two to three years old will get notably improved performance, and a robust set of new features to enjoy. And the entry-level product ships with 64GB of storage, likely a good bump for many people.
Perhaps what is most notable about the SE, however, is the trends and technology Apple chose to ignore with the phone. For starters, it is a 4.7-inch phone in a world where everybody else is rocketing toward sizes closer to 7-inches. (My colleague Anthony Scarcella notes that in 2019 phones with smaller than 5-inch screens represented just 4.2% of the market.) That said, this is likely to be a key selling point to a subset of iPhone buyers who have lamented the industry-wide rush to larger screen sizes, and who prefer a more manageable sized phone. It’s a perceived negative that I expect many actual buyers will see as a positive.
The SE, as noted, is an LTE phone and not 5G. In 2020, most smartphone vendors expect to ramp up 5G shipments. While the first 5G phones have all carried premium price points, we will see a growing list of Android products land at sub $500. And we expect Apple to launch its first high-end 5G phones later this year. Despite all this, I believe SE’s LTE could be a selling point for many buyers. Most consumers looking to buy in this price range know very little about 5G, and its advertised benefits. And most are generally happy with LTE performance. Finally, some might be concerned that their carrier will charge them more for 5G coverage. Net net, LTE over 5G, may equate to a positive and not a negative for many.
Apple opted to retain the home button on the SE and with it, Touch ID (and the resulting large top and bottom bezels). Bleeding-edge users may see this as a significant compromise, but I’d argue that many people in the market for an SE will see this as a clear benefit. They like the iPhone home button, and they are comfortable with that interface mode. Moreover, they are just not that interested in using Face ID.
Perhaps the biggest perceived downside to the SE, and the trend it bucks the hardest, is its inclusion of a single, 12MP camera. At a time when most (but not all) Android vendors are shipping phones with two, three, or even four cameras, this might seem a deal-killer for many. But the new SE leverages everything Apple has learned about computational photography over the years. Combined with the A13 Bionic chip, I expect it will represent a notable leap in performance over what many buyers are using today, even if their current phone has more than one lens.
The SE’s combination of features, and, frankly, lack some features, makes it a strangely compelling new product. In uncertain times, you cannot overestimate the importance of appealing to people’s need for familiarity and comfort. I expect this product to fill that need for many iPhone buyers.
Starting Price of $399
Apple’s decision to ship a new iPhone at the sub $400 price point will have notably ramifications across its line. Some financial analysts will decry the downward push this will have on the average selling price of iPhones, but that is a short-sighted view. By shipping a new iPhone at this price, Apple is aggressively moving to capture buyers who often shop for iPhones in the secondary market.
In 2019, IDC estimated that over 200 million phones moved through the secondary market, and Apple phones represented nearly three-quarters of that volume. I am told Apple captures very little of the residual value of those reclaimed phones itself, leaving that for its refurbishment partners. Instead, it has focused on the installed-base benefits of getting those phones back into the market, and its ability to sell software and services to those owners.
With the new SE, Apple offers a brand new phone likely to appeal to those customers, and it could have a significant impact on the secondary market. Near-term, it will likely drive down demand for used phones, and causing prices to slip. Lower refurb prices mean even more, price-conscious buyers may explore the option of buying an iPhone, perhaps their first.
It is also worth noting that while the new SE starts at $399 with 64GB of storage, many buyers will acquire it for notably less as Apple is offering buy-back options on this phone, too. So, for example, you can currently trade-in your existing iPhone 8 and get up to $170 off the price, for a total cost of $229.
Finally, the SE positions Apple quite well for the increasingly important prepaid market, too.
The Right Phone at the Right Time
Apple has already shipped some important new products this year, and we expect it will launch more later in 2020. Future launches could include the first 5G iPhones, new Macbook Pros, and perhaps even the first A-Series based Mac notebook products. But with the SE, Apple has—perhaps through luck as much as planning—launched a phone that may turn out to be precisely the right product at the right moment in time. What may have looked like a cost-down device that lacked some modern features six months ago now looks like a familiar, comfortable product with a time-tested design. Combine that with a reasonable price, and the SE makes sense for buyers who desperately need a new phone, but who can’t justify a higher-end product during these challenging and uncertain times.