Apple targeting $399 iPhone SE at non-Apple users and small phone fans

Apple announced a new, 4-inch iPhone with a price tag aimed at enticing Android users to make the switch and current iPhone users to buy a newer model.

iPhone SE

The iPhone SE will start at $399 for a 16 GB model, making it the most affordable new iPhone model ever, Apple said at a media event at its Cupertino, Calif., headquarters. But the new gadget has some of the high-end specs that are packaged in Apple's more expensive models: it's powered by the 64-bit Apple A9 processor alongside an embedded M9 motion co-processor, just as the iPhone 6s is. The two phones also both sport the same 12-megapixel iSight camera and the same screen density of 326 ppi.

AT&T, Sprint, T-Mobile and Verizon were among those listed as carriers that will sell the iPhone SE.

Apple said many of its customers prefer smaller screens despite the recent movement to bigger phones with oversized screens, so the iPhone SE is designed as a replacement device for those users. Specifically, Apple said it sold 30 million 4-inch iPhones in 2015, which Ovum said represents only 13 percent of total iPhone sales for the year. But Apple as much as conceded that the phone is aimed largely at owners of Android, which often runs on devices that are much less expensive than those of Apple's limited iPhone lineup.

"We found that for a lot of these customers (of 4-inch iPhones), it's their first iPhone," Apple executive Greg Joswiak said during Apple's event. "Whether they're switching from Android or it's their first smartphone, it's the first time they're experiencing iPhone."

Joswiak said that many owners of current 4-inch iPhones are in emerging markets such as China, where users can be more price sensitive.

Regardless, Apple is clearly trying to spur sales at a difficult time for it and its rivals. Apple is facing slowing sales in China as that market matures, and it's struggling in the U.S. as consumers increasingly wait longer to upgrade their smartphones.

Apple's new mid-range iPhone SE handset is likely to appeal to users who don't want a phablet but who do want impressive specs in an affordable model, Jan Dawson of Jackdaw Research (a FierceWireless contributor) wrote in a research note.

"There's significant pent-up demand within Apple's base of iPhone owners who want a smaller iPhone with up-to-date specs and newer features," Dawson wrote. "The iPhone SE is designed for this group, and should unleash a decent upgrade cycle over the coming months. During a period when iPhone sales overall have slowed following a massive upgrade cycle craven by the iPhone 6 launch, a few million more sales in the quieter spring and summer months should help Apple close the gap with last year's sales."

However, others see a relatively narrow opportunity for the iPhone SE in the U.S. market. "The analysis indicates the limited opportunity for Apple to sell the smaller iPhone SE in the U.S.," said Mike Levin, partner and co-founder of Consumer Intelligence Research Partners, in a release. "Very few of the 81 million consumers that already own a larger iPhone 6 or 6 Plus, or 6s or 6s Plus, are likely to trade down to the smaller iPhone SE."

CIRP predicted apple will sell only 4-6 million units of the iPhone SE in the United States. The firm said that 110 million iPhones were in use in the U.S. at the end of last year, including 62 million iPhone 6 and 6 Plus and 19 million iPhone 6s and 6s Plus models. 

Wells Fargo, meanwhile, said the release of the iPhone SE will modestly boost Apple's performance in the coming quarter. "We believe the SE will help bridge AAPL to the iPhone 7 in September and we continue to expect units to be up year over year as is typical in a non-S cycle. Our December quarter iPhone unit forecast calls for 82.0MM versus Street's 77.0MM."

Apple seems to have taken a similar tack with the iPad Pro it unveiled at the event, which is both smaller and less expensive than the original, 12-inch iPad Pro. The 9.7-inch iPad Pro tablet starts at $600, a 25 percent discount from the original, but its core features are similar to those of the more expensive slate. The new iPad Pro also includes "True Tone," which uses sensors to measure ambient light and adjust screen brightness and color tone for a more natural look.

Apple once again declined to disclose sales figures of its Apple Watch but cut the price of the wearable from $349 to $299 in an indication sales may be lagging. It also introduced the latest version of iOS as well as an update to Apple TV that adds support for Siri voice dictation.

Related articles:
Analysts: Smartphone shipments broke records in 2015 despite slowest-ever growth in Q4
Analysts: Global smartphone shipments growth slowed further in Q3
Smartphone shipments growth becomes hard to find in Europe - Year in Review
Analysts: Smartphone shipments growth slows to worst level in six years during Q2

Article updated March 22 with additional commentary.