IHS: iPhone SE targets an underserved segment, but will not change the iPhone's fortunes

Apple has a “significant opportunity” with the new, smaller screen iPhone SE because the majority of iPhone models in active use are models with small screens, though it won’t fundamentally change Apple’s fortunes, according to IHS.

 Of iPhone models in active use, 29% are iPhone 5 models with four-inch screens, and 23% are even older iPhone models with screens sized just three and half inches. 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, says IHS. The research group finds it “important” that Apple's competitors have chosen not to target the premium compact smartphone market.

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. 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. The sole Android smartphone maker to persist with premium compact designs, Sony, has moved away from this approach with its just announced X series model because all three upcoming models offer a relatively large five-inch screen.

IHS says Apple's challenge in 2016 is how to continue iPhone momentum when the year on year comparisons will be made with Apple's exceptional 2015 iPhone performance. A year ago, Apple secured an enormous uplift in iPhone models because the shift to the larger screen format iPhone 6 and iPhone 6 Plus expanded the appeal of the iPhone to consumers who had previously only been able to buy a large screen smartphone from an Android smartphone maker.

IHS says the iPhone SE isn’t about offering a cheaper iPhone. Instead, Apple benefits from placing its latest technologies in more consumers hands, including those who prefer a small smartphone. These buyers will now enjoy Apple Pay, access to the very best latest apps and games, and so will increase the addressable market for Apple's partners and drive Apple's ecosystem forward. But in one area Apple has saved costs, by including only category 4 LTE support, rather than the faster category 6 in the iPhone 6S, or the category 9 in some of the latest competitor flagship models.

Apple hopes this return to a compact iPhone, close to the iPhone's origins, will cause a similar boost to iPhone shipments from the new format. However the new iPhone isn’t really a new iPhone format, because the four-inch iPhone 5S has remained on sale throughout the iPhone 6 era offering consumers a choice of a smaller screen iPhone, although with older hardware.

As a result, IHS continues to expect iPhone shipments to decline in 2016 by 7% year-on-year. The research group sees two main ways Apple could boost 2016 iPhone shipment volumes:

Launch an iPhone 7 early, for example in June. Accelerating the introduction of the next generation iPhone from September to June means there would be three months more for the new unit to be on sale.

Offer a dramatically improved iPhone 7 design. Like all smartphone makers, Apple is now competing with the active installed base of smartphones in use now and must persuade consumers a new model is significantly improved on their existing smartphone. 

The iPhone SE is a very competent smartphone targeting an underserved market segment of consumers who want a compact smartphone which is fast and offers a great camera experience,” says IHS. “But iPhone SE will not change the market trajectory for the iPhone. Like all smartphone makers, Apple must find ways to trigger all current smartphone owners to upgrade from their "good enough" existing smartphones. 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.”