- Apple did not declare first weekend sales of the iPhone SE, sparking chatter about disappointing numbers for the latest iPhone.
- However, the iPhone SE is yet to launch in most emerging markets, where sales could indeed take off due to the pricing .
- It is still too early to term the latest launch from Apple Inc. a success or a failure.
The iPhone SE, Apple's (NASDAQ:AAPL) latest addition to the iPhone family has been in the news ever since its launch on March 21. The iPhone segment is highly important to Apple, given the fact that the segment contributed 66% of LTM (Last Twelve Months) revenue. Hence, It's no surprise that the bulls and bears have been closely watching any news related to the iPhone SE.
Initial reports claimed strong orders in China but the failure of Apple Inc. to declare the first weekend sales has sparked chatter about sales being disappointing. However, there are key positives which are hard to miss when you are swayed by the noise coming out in the media.
iPhone SE Is Yet To Launch In Most Emerging Markets
The iPhone SE is yet to be launched in most emerging markets, with China being the only exception. With the iPhone SE being a good fit in emerging markets (given its competitive pricing), a launch in these markets should boost the sales numbers.
iPhone SE launch dates across various markets
Has Apple Successfully Brought In New Users?
Another trend which will of interest to Apple bulls was highlighted by research from Slice Intelligence. The research findings are summarised in the chart below.
Source: 9to5 mac
Only 35% of iPhone SE buyers purchased an iPhone online in the last 2 years while 16% of them are first-time iPhone buyers. In comparison, 10% of iPhone 6S buyers were first-time iPhone buyers. It is pretty clear that iPhone SE has succeeded in bringing in new users from Android and other eco-systems. Given the competitive (mid-range) pricing of the latest iPhone model, this should come as no surprise. The sub-$500 pricing of the iPhone SE pits it against popular mid-range phones across the globe, and that is precisely the segment Apple will be targeting.
A Refresh Cycle Could Boost iPhone SE sales
48% of iPhone SE buyers haven't purchased a phone in the past 24 months. It has been 18 months since the launch of the bigger screen iPhone 6. Hence, it would be fair to conclude that a significant number of iPhone SE buyers previously owned an iPhone with a 4", or smaller, screen. Is this a clear indication of a refresh driven by customers who love the size and functionality of the smaller screen phones? Well, it might indeed be the case.
Apple CEO Tim Cook mentioned in Apple Q1 2016 earnings call:
"The number of people who had an iPhone prior to the iPhone 6 and 6 Plus announcements -- and so this was in September of 2014 that have not yet upgraded to a 6, 6 Plus or 6s or 6s Plus is now 60%. So, another way to think about that is 40% have, 60% have not."
Another way to look at this is that 60% of people who owned an iPhone before September 2016 continue to use an iPhone with a 4" , or smaller, screen. So, what exactly is the number of people using iPhones with a 4" or smaller screen size?
At the end of Nov 2013, Apple had sold close 420 million iPhones with 250 million of them in active use, implying that 60% of total units sold were in active use. Apple went on to sell its 500 millionth iPhone in March 2014, and the number could have been well close to 600 million before the launch of iPhone 6 in September 2014 (Apple sold close to 75 million units between March and September 2014). Assuming that 60% of these represented active devices in use, we arrive at active iPhone devices of around 360 million before the launch of iPhone 6. That means that 60% of these or around 216 million users are still using an iPhone with a 4" screen or lower. The number is large enough to drive significant additions to iPhone SE sales even if just 10% or 22 million, of the users upgrade.
Yet another data point of relevance would be the fact that Apple sold 30 million 4" iPhones in the last year. With Analysts estimating Apple to sell between 12-18 million units of the iPhone SE, the iPhone SE could, in fact, turn out to be the difference between beating or missing earnings estimates over the next few quarters.
To sum up, Apple unveiled the iPhone SE last month and started taking orders on March 24. For a change, Apple failed to declare the first weekend sales, a practice which it had followed with earlier iPhone launches, which has started chatter about the SE numbers being disappointing. However, It would be premature to judge the success or failure of the iPhone SE right now, as the phone is yet to launched across most emerging markets. Also, the huge pool of users currently on smaller screen iPhones could provide a good tailwind to iPhone SE sales numbers over the coming quarters.