Thus far, the investor reaction to Apple’s iPhone SE has been a collective “meh.” But the new 4-inch iPhone signifies an important strategic shift for the company that investors don’t seem to be appreciating. I’m not just talking about the fact that the iPhone SE appears to be aggressively targeting first-time smart phone buyers in emerging markets. Earlier The biggest downside from a consumer perspective was that you always had to pay up in order to get the latest and greatest tech. Historically, only the flagship models would include the fastest processors and other relevant specs. But not anymore. The iPhone product strategy is evolving.
Of course, the main trade-off comes in the display size, but that’s also a matter of consumer preference. It’s not as if a 4.7-inch display is inherently better than a 4-inch display (even if it is more expensive). A lot of people still prefer smaller phones, and for consumers that are content to remain in that market segment, the iPhone SE is an incredibly strong product. No longer are they relegated to older generations of iPhones.
The new Se has implications on other Apple products too. This shift has some potential implications for the iPad family — specifically the Minis. The Minis have always been the most affordable iPads, in part due to the smaller display and form factor. But Apple’s track record with how powerful it makes the Mini is mixed. The original Mini initially shipped with a previous-generation A5 processor. iPad Mini 2 launched with a then-current A7, but Mini 3 added only Touch ID, and the Mini 4 currently ships with a previous-generation A8.
Monetary benefits are aplenty. Grabbing a conservative 40% of this segment would translate into 17 million incremental iPhone units, and these sales should be incrementally additive since Apple has never directly played in this market before. And cannibalization risks are modest since there have always been secondhand iPhones available to consumers in this segment. Those consumers will just now be buying new models that will be included in Apple’s results.
