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Summary

Apple announced two additions to its mobile product line: the new entry-level iPhone SE and a 9.7-inch iPad Pro. The company also dropped the starting price of the Apple Watch by $50 to $299. Starting at $399 and $599 respectively, the iPhone SE and the 9.7-inch iPad Pro embed technology and features from higher-end counterparts, such as the A9 processor and the 12-megapixel iSight camera, dual-tone flash, and Live Photos.

Apple iPhone SE is aimed at refurbished market

Apple mentioned it sold 30 million 4-inch iPhones in 2015, which represents only 13% of total iPhone sales for the year. But the company’s goal with the iPhone SE goes well beyond that:

  • Refurbished handset sales have been growing steadily in the past couple of years in developed and developing markets. Some smartphone recycling companies told us that up to 80% of refurbished smartphone sales are iPhones. It is in Apple’s interest to have those customers purchase a cheaper “new” iPhone SE rather than a refurbished iPhone 5 to gain a stronger hold on iPhone sales and corresponding margins.

  • China now represents more than a quarter of Apple’s revenues. The Chinese market is not bringing as much growth as previously and is becoming more competitive than ever. Apple must decrease the entry price of new iPhones to sustain growth in China. The iPhone SE offers very high specifications for a low price, which is essential to appeal to Chinese consumers.

  • India is the market that represents the largest growth opportunity for Apple. The company has only 5% market share of 120 million unit sales in 2015. Apple has been investing in India throughout 2015, with a development center in Hyderabad and licenses to launch its own stores in the country. With the iPhone SE, Apple will not really disrupt the Indian smartphone market but rather try to dominate high-end sales – 77% of smartphone sales in India in 2016 will be below $200.

It is important to remember that Apple continues to be a high-end device manufacturer and operates on very high margins. Unlike smartphone start-ups from Asia, Apple will never sacrifice profits to gain market share.

Appendix

Further reading

Smartphone Market Update: Apple’s Success Beyond 2015, TE0004-001046 (October 2015)

Author

Ronan de Renesse, Lead Analyst, Consumer Technology

ronan.derenesse@ovum.com

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