Apple downsized its iPhone to tap an underserved niche, and the company downsized its iPad Pro to go mainstream.
Those are the key takeaways from Apple’s introduction of the 4-inch iPhone SE and 9.7-inch iPad Pro. Both are expected to help shore up Apple’s falling iPad sales and expand the potential base of iPhone customers, although those efforts must be followed by bolder moves to turn around lagging iPhone growth and declining iPad sales, analysts said.
The iPhone SE taps an underserved segment by offering a premium smartphone with the latest technology in a small screen size, the analysts said. That niche has been abandoned by other smartphone makers who pack their lower priced smartphones with lesser capabilities, they pointed out.
Also to expand its potential smartphone base, Apple is hitting a new iPhone opening-price point of $400, down from $450 on the older to-be-discontinued 4-inch iPhone 5s.
For its part, the launch of the 9.7-inch iPad Pro complements the six-month-old 12.9-inch Pro and brings Pro capabilities into the more popular 9.7-inch size at a lower price, analysts said. That lets Apple tap into demand for a mainstream-size tablet and provides a chance to push tablets deeper into the corporate segment. The launch also acknowledges the popularity of two-in-one tablets with detachable (though optional) keyboards, they added.
iPhone SE potential: Canalys analyst Dan Mattee expects the SE will expand Apple’s potential customer base because it reduces the opening price point of an up-to-date iPhone to $400. The lower price “is where Apple sees the potential, that is, offering a modern low-end phone without cannibalizing sales of phones with larger displays and higher ASPs,” he explained.
The lower price point, however, will expand the market for Apple only by “a little,” he said. Despite the launch, Apple’s iPhone sales have a “good chance” of continuing to decline for a while or going flat after a first-quarter decline.
IHS analyst Ian Fogg sees “significant” opportunity for the SE globally and in the U.S. The SE will struggle in developed Asian markets “because of the enormous popularity for large smartphones in the region,” he said, but in the U.S. and elsewhere, “there is almost no competition for a small- but-premium smartphone like the iPhone SE now.” Globally, the main player that has aimed at that segment is Sony, which has little U.S. share, he noted.
“With the iPhone SE, Apple is choosing to aim at an underserved segment of consumers that prefer small screen smartphones and have been reluctant to upgrade,” Fogg said.
In the U.S., 58 percent of iPhones in active use are larger screen iPhones compared with 48 percent globally, Fogg said. Thirty-six percent of iPhone owners in the U.S. are still using iPhone 5 models with 4-inch screens, and 6 percent are using older iPhones with 3.5-inch screens, he said.
“The iPhone SE increases the differentiation of the iPhone portfolio from Samsung, LG and other Android smartphone makers because it offers high-end smartphone experience and camera in a compact design,” Fogg continued. “By contrast, all of the leading Android smartphone makers choose to pair their compact smartphone designs with slower processors, slower LTE network support and lower performing cameras.”
Like all smartphone makers, however, Apple must find ways to trigger current smartphone owners to upgrade from “good enough” smartphones, Fogg said. The iPhone SE “will help to do this for a part of the installed base, but Apple needs bigger bolder ideas to drive a significant uplift in iPhone shipments and accelerate the upgrade cycle,” he noted.
For his part, Forrester Research analyst Thomas Husson said the SE “should help Apple hit volume goals until the release of a more disruptive new device a couple of months after its developer conference.”
The introduction, he added, demonstrates “Apple’s ability to successfully manage its product portfolio.”
9.7-inch iPad Pro potential: In launching a 9.7-inch iPad Pro to complement the six-month-old 12.9-inch Pro, Apple has acknowledged the appeal of the two-in-one tablet as a laptop replacement, Mattee of Canalys said. “The iPad line is becoming more segmented as Apple tries to stem the decline of iPad sales by upgrading productivity functions,” he said. Bringing an iPad Pro in at a more mainstream size of 9.7 inches “could help a lot to stem the iPad decline,” he continued, as could the reduction of the iPad Air 2’s price.
“Apple needs to make the iPad more attractive to everyone, and it can do so by making it more computer-like to replace the laptop,” Mattee added.
For his part, Forrester’s Frank Gillett expects the new Pro will give owners of early iPads a strong reason to replace them. “Even though unit sales have declined, the iPad will not fade away because many buyers of early iPads will likely start replacing them, causing tablet and iPad sales to stabilize,” he said.
Neil Mawston of Strategy Analytics also sees potential. “Apple is shifting the iPad Pro to cheaper price points and new screen sizes to try and reignite growth in its tablet division and fend off rising competition from Windows,” he said.
“A smaller, cheaper iPad Pro gives Apple a new product to sell in the valuable enterprise segment,” he added. “A smaller, cheaper iPad Pro gives Apple a chance to push tablets deeper into the midrange corporate segment.”
“The global two-in-one tablet segment is growing relatively fast, and Apple cannot afford to ignore it,” Mawston said.
