Apple prices new iPhone version at $399 for pandemic era

Apple launched a cheaper iPhone with a smaller screen on Wednesday, expanding on a strategy to cut entry point prices so it can grow its user base for services.

Priced from $399, the single camera, 4.7-inch screen in a revamped version of the iPhone SE features “touch ID” rather than facial recognition, and is equipped with Apple’s A13 Bionic chip, which the company says is “the fastest chip in a smartphone”. Sales of the smartphone — available in black, white or red — start on Friday.

While sale volumes were difficult to estimate during the coronavirus pandemic, analysts said the phone came at an opportune time for many customers who would find it difficult to justify an upgrade to an iPhone priced at the $1,000 upper end of the range. 

The new version of the iPhone SE, which comes with 64GB of storage at the $399 price tag, matches the cost of the original iPhone SE in 2016. But, as the cost of flagship iPhones had accelerated in recent years, customers were likely to see the newest device as even more affordable, said Ben Wood, chief of research at CCS Insight.

“In 2016 there was a $400 difference between the iPhone SE and a 64GB iPhone 6s Plus,” he said. “In 2020 the new iPhone SE costs $700 less than a 64GB iPhone 11 Pro Max.”

For anyone who keeps their device a long time it’s a good upgrade

Apple’s hope will be that the new handset dents sales in the second-hand iPhone market and steals share from its various rivals, led by Samsung and Huawei. One risk, however, is that it cannibalises sales from its own portfolio of higher margin iPhone 11s.

The company has demonstrated in the past year that its pricing strategy has shifted towards growing and retaining the user base for its system of services. While Apple derives a bulk of its revenue from expensive hardware, its expanding array of music, television and application services — along with phone accessories such as Airpods and the Apple Watch — have become a key differentiator to the products of rivals.

Chris Locke, chief executive of Rainmaking, an innovation consultancy, said the revamped iPhone SE was another example of Apple sacrificing profit margins on its hardware to reap recurring, higher-margin on associated services.

“If you look at core markets, we are looking at 2022 when the recovery comes, so how do you keep revenue coming in and stay relevant?” he said. “It’s a smart move.”

The phone had been widely expected to be launched last month, which would have provided a boost to the last quarter’s earnings, expected to be reported on April 30.

When Apple released a revenue warning in mid-February as a result of the spread of coronavirus, it was interpreted to mean that factory shutdowns in China had caused production delays of the new iPhone SE.

Still, Annette Zimmermann, an analyst at Gartner, said the timing of the launch would be convenient for users of older handsets such as the iPhone 6 or 6+. “For anyone who keeps their device a long time it’s a good upgrade,” she said.