AAPL's Big Surprise (March-2016)
AAPL held its annual spring event on March 21st, which Cook claimed would likely be the last media event ever held on the current AAPL campus as the company migrates to its new headquarters, which will have a much larger, state-of-the-art auditorium for future product unveils. So what did they announce?
- Environment - AAPL discussed its commitment to the environment. The company showcased its ability to run 100% of its U.S. operations on renewable energy and now has 93% of its Chinese operations on renewable energy. Additionally, AAPL showcased a new R&D project called "Liam", which is a robot that is able to facilitate the recycling and reuse of components by using precision robotics to breakdown the components of old iPhone's for alternative use.
- CareKit - AAPL announced a new software development kit focused on disease management - a creation off of the success the company has had with its ResearchKit platform - it's an open-source project.
- tvOS 9.2: AAPL announced that it had released a new version of its tvOS software for the Apple TV. Improvements include the ability to create app folders, bluetooth keyboard support and Siri remote dictation.
- iOS 9.3: AAPL announced the release of iOS 9.3 for all of its latest iOS devices. The main improvements include a new "night vision" feature, upgrades to its Notes app (password protection & sorting), and upgraded CarPlay features.
- New Apple Watch bands: AAPL introduced new bands made from a nylon material & introduced new colors of both the sport straps and milanese loop bands.
- Apple Watch Sport price reduction: AAPL reduced the entry-level price on the The Apple Watch Sport (aluminum case) with the 38mm now starting at $299 and the 42mm starting at $349 - both down $50. Interestingly, they did not move the price down on the Apple Watch (steel case).
- iPhone SE: AAPL introduced the newest member of its iPhone family - an upgraded 4" iPhone w/ the same chassis as the iPhone 5S, but with significant upgraded internals [more below]
- iPad Pro 9.7": AAPL also introduced a smaller companion to the 12.9" iPad Pro introduced in October that has many of the same features, and even some new ones (upgraded screen technology, 12MP camera w/ flash, & 256GB configuration) that leaves its larger 'brother' yearning.
Like many things AAPL-related these days, much of these announcements (mainly on the product side) were already known via various leaks from the supply chain and other "sources familiar with the company". So the biggest surprise was not any of the new products but rather, the price of the iPhone SE.
AAPL Surprises on Price, but Rarely to the Downside:
The iPhone 5C 'saga'
In September-2013, AAPL introduced its first plastic iPhone - the iPhone 5C. It wasn't described as plastic, but for all intents-and-purposes, it was. The 5C was expected to be AAPL's foray into the mid-tier priced smartphone market, until it wasn't. The entry-level 16GB 5C (which was essentially the iPhone 5 in a colorful plastic shell) started at $549 (off-contract), which was only $100 cheaper than the flagship at-the-time (the iPhone 5S). The 32GB version was $649 (off-contract), which was equal to the base-price of the entry-level 16GB 5S.
Nobody knows exactly how many iPhone 5C's AAPL ended up selling prior to its discontinuation in September-2015, but consensus is that the product never really caught on in large part, because of price, and overall lack of the latest features. I was actually very favorable of the 5C - it was a great phone with good build quality, but like many, my only complaint was that it lacked the features that I had grown used to with the 5S (TouchID mainly).
The iPhone 5SE 'surprise'
After hearing Greg Joswiak (which was somewhat of a surprise in-and-of-itself) go through all of the specs of the new iPhone 5SE, I was completely expecting the entry-level 16GB configuration to be priced at $499, which would be $50 less than the entry-level iPhone 6. That made sense to me based on prior AAPL pricing decisions combined with the specifications of the new device:
So out of 19 different specifications, the iPhone 5SE wins on 6 of them [Green shaded cells], while the iPhone 6 wins on 2. They are 'equals' on 11 of them [Yellow shaded cells]. Some may argue that the 4.7" screen size is not necessarily a positive, but given the acceleration of iPhone sales post Sept-15 (launch of 6 & 6+), it's pretty clear that the broader market favors larger screen phones.
From a pure "spec" basis, I was actually pretty surprised by the 2GB of RAM in the 5SE - AAPL historically has been very conservative with RAM in its iOS devices. The iPhone 6S / 6S+ were the first iPhones to get 2GB of RAM and even the iPad did not get 2GB of RAM until the iPad Air 2, which was released in October-2014. The new 9.7" iPad Pro is also only running off of 2GB of RAM, as compared to the 12.9" iPad Pro, which has 4GB. My 'guess' is that the bare minimum amount of RAM needed to fully utilize the power of the A9 SoC processor is 2GB. I'm sure AnandTech will be able to discuss it in much more depth, and with much more expertise that will put my speculation to shame.
Back to price. I would argue that this is AAPL's first foray ever into the "mid-tier" smartphone market. I do not consider lowering the price on legacy models to the "mid-tier" equivalent to pricing a new phone with the latest specs at the "mid-tier". Many will argue that paying $399 for a phone that's been on the market for over 2.5 years is ridiculous. What those same people don't realize is that this $399 phone has specs that are superior to a phone released in September-2015 on many different levels, AND is $150 cheaper.
AAPL truly astonished me with this pricing..and in a good way. I think it's a clear sign that AAPL has generated enough economies of scale by leveraging tooling on a proven chassis & a global supply chain, to make a quality phone with sufficient profit at a "mid-tier" price point.
Will people buy it?
People buy smartphones on the specs that matter most to them - and generally-speaking, those are consistent across the board. Most people do not know, nor care what SoC (processor) is in their smartphones; they also don't care how much RAM is in the phone. What they do care about is the camera, the screen size, the battery life, and the price. That said, as shown by AAPL's charts during its keynote on Monday, there are still many iPhone users that value the one-handed use that a 4" phone affords. When you combine that with the upgraded camera, increased battery life and the price-point, I think the iPhone SE has a very good chance of becoming a successful addition to the current iPhone lineup. It's not going to win over people who just want the bigger screen sizes. But, it's also not going to provide a "compromised" experience - something that the iPhone 5C did in spades.
I am excited to see the reception of this 'new' phone from the masses.
The Bottom Line:
As smartphone adoption continues down the path of saturation abroad, AAPL's ability to continue attracting the emerging middle class to its most profitable product will become increasingly important. Bringing an 'accessible' smartphone to the market with the company's incredible brand-power will enable it to reach a demographic that historically settled for "dumbed-down" versions of its latest models. The iPhone SE is on-par with AAPL's flagship models, but at a significantly reduced price-point, and that will enable it to continue building sales overseas in markets that never could afford its products.
MacRumors has compiled a number of reviews that are generally favorable to AAPL's newest iPhone: