IPhone SE Might Not Be Enough To Save Apple Inc. In 2016

  • Close to one month after the launch of iPhone SE, indications are that adoption of the smartphone remains low.
  • Apparently consumers in the developing economies are finding it pricey and don't like the small screen.
  • iPhone SE might not do much to prevent the expected iPhone sales decline in 2016.

When Apple Inc. (NASDAQ:AAPL) launched iPhone SE in late March, investors were hopeful that the new mid-range smartphone would at least limit the serious iPhone decline projected for 2016. Well, it's now close to a month since iPhone SE hit the markets and early indications are that adoption rates are quite anemic, to say the least.

According to iPhone tracker Fiksu, iPhone SE adoption currently stands at just 0.4% of iPhone installed base which analysts estimate at 427M-550M. That works out to about 1.95M iPhone SE units sold to-date. You can view the tracker here. Those stats seem to correlate well with findings by another iPhone tracker, Localytics.

What's particularly worrying about those early stats is that iPhone SE current adoption rate is actually the lowest since Apple launched iPhone 5. Even worse is that the iPhone SE is tracking well below iPhone 5s, the iPhone that it's supposed to replace. At the launch of iPhone SE, Apple said that iPhone 5s will no longer be available at Apple retail stores. After all, iPhone SE is an iPhone 5s look-alike but with superior specs including an A9 CPU with M9 motion co-processor, a 12 MP rear camera, an A9 image signal processor, NFC radio/Apple Pay support, 802.11ac Wi-Fi radio, ability to support LTE download speeds of up to 150Mbps, and ability to support 4K video capture. Base model iPhone SE (16MB) goes for $399 unsubsidized compared to $450 for iPhone 5s.

Now Apple's move to remove iPhone 5s from its stores in a bid to encourage adoption of iPhone SE might have been ill-informed. iPhone 5s is the second most-popular smartphone in Apple's iPhone lineup with 18% of iPhone users owning a 5s behind only iPhone 6 with a third of iPhone users owning it.


Source: Business Insider

If you extrapolate the current SE adoption trajectory in the Fiksu tracker (which is pretty consistent so far), then adoption rate of the new smartphone will have hit 4.3% by the end of 2016 and about 5.8% one year after its launch. If we work with the midpoint of the estimates for iPhone installed base (488M), then Apple is on track to sell about 21M SE units in 2016.

Apple sold 231M iPhone units in 2015. Analysts expect Apple to record sales declines in all the four quarters of fiscal 2016 with some analysts saying full-year sales might dip below 200M units. Sales are expected to fall as much as 20% Y/Y during FQ2. However, the company reported an 18% YoY decline in the segment. So the FQ2 Apple report will probably be its worst for the year.


Source: Business Insider

There is a strong possibility that many analysts had used iPhone 5s numbers when modeling iPhone SE sales for the current year. For instance, RBC Capital Markets analyst Amit Daryanani had predicted 40M unit sales in 2016 for SE, or close to double my estimate using the Fiksu tracker, just a few days after the launch of the smartphone. But current indications are that SE sales won't come anywhere near iPhone 5s numbers so the expected iPhone decline in 2016 might come in bigger-than-expected.

My fears are supported by a recent Nikkei report that said that Apple is planning to extend an ongoing iPhone production cut by one more quarter. Apple had cut iPhone production by 30% during calendar first quarter and an extension of the cuts means that the outlook for the year is not good.

Apple has already started taking steps to try and boost SE sales. For instance, the company has been wooing corporate customers in India to buy SE by offering them lease and financing plans pretty much the same way it does with its iPads in the country. Although Apple has positioned SE as a mid-range alternative to its bigger-screen counterparts, apparently consumers in developing economies are finding its price points beyond their means.

Investor Takeaway

Investors have been hoping that iPhone SE will boost Apple's iPhone sales in the current year. But current indications are that the smartphone might not be selling as well as hoped for. On a brighter note, it's still too early to say definitively if SE will be a flop or a success. Investors can only hope that iPhone 7, due for launch in September this year, will sell much better.

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