iPhone SE: The Good, the Bad and the Ugly

Just last week, Apple released their new iPhone. However, it was not the new and better iPhone 7 that everyone expected them to reveal. Instead they re-hashed a four year old design (derived from the iPhone 5) and simply added an upgraded hardware inside.

Their reason for doing so — millions of people still want a 4-inch smartphone. Their 2015 sales numbers point to an observation that a significant number of iPhone users still prefer a much smaller phone. That’s a surprising revelation in a market where Apple’s latest flagship device is the smallest of all the other competing flagship handsets. Yes, the 4.7-inch display size of the iPhone 6S pales in comparison with the 5.1-inch of Samsung’s Galaxy S7, 5.2-inch Sony Xperia Z5 and 5.4-inch LG G4.

Then again, there could be more to that than just the size. We think it’s more of the price. You see, this is not the first time that Apple created an iPhone that was positioned to be priced lower than their flagship.

A couple years back, Apple also introduced a cheaper iPhone 5C along with the upgraded iPhone 5S. Apple was hoping to sell more units because the iPhone 5C would attract Apple fans who cannot afford the premium price of the flagship handset. That did not happen and people snubbed the 5C in favor of the better 5S. The main reason is that Apple did not put a wide enough price gap between the two which was just Php5,000USD 85INR 7,223EUR 81CNY 621 (around 15%).

Apple learned their lesson, did not repeat it in the iPhone 6 and moved on. Or so we thought.

From the looks of it, the iPhone SE is more like the iPhone 6C of this generation. And this time, Apple applied what it learned from the failed iPhone 5C and made the iPhone SE much more affordable — about 45% less than the retail price of the iPhone 6S.

So, when Apple saw that millions of people are still buying 4-inch iPhones (the iPhone 4S and iPhone 5/5S), they thought it was because people wanted a smaller smartphone. They missed the other observation that people were buying the 4-inch iPhones because they were now much cheaper. If you check around, a brand iPhone 5 and 5S are selling well under Php20,000USD 341INR 28,892EUR 325CNY 2,482 or close to 50% of the retail price of the current batch of iPhones. On top of that, the telcos are practically giving them away for free with data plans.

If the 4.7-inch iPhone 6 were selling at the same price as the iPhone 5S, we’re pretty sure it will sell more than its smaller 4-inch predecessor.

This is not isolated to Apple. Other smartphone vendors have surely made a similar observation. Samsung’s A series and J series smartphones are selling well not because people wanted smaller phones but because they can only afford the cheaper versions of the flagship model.

Apple’s observation would have been more believable had they created a 4-inch iPhone that looks alot like the iPhone 6 and called it the iPhone 6SE (Small Edition?). But then again, shrinking that iPhone 6 to just 4-inches would have required a lot of re-engineering due to its slimmer form factor. The thicker profile of the iPhone 5 works just right and the older materials are also cheaper. Not that Apple was lazy as others would call the resurrected design. Rather, they were looking for ways to still make a good margin despite the lower retail price. Perhaps as good a margin as they’re getting on the latest iPhone 6S.

However you look at it, this is still a good move for Apple. They will sell a ton of the iPhone SE as they predicted. However, once the iPhone 7 will be released in September, that would drive the prices of the iPhone 6S and the iPhone 6 down and when the latter matches the retail price of the SE, then we will really know which one will people go for.

In the end, Apple’s success with the iPhone SE will mean that the next generation of iPhones will come in three sizes — 4 inches, 4.7 and 5.5. It would be interesting to see what the iPhone 7 line-up will look like this September.