Evercore: Why an early 2020 ‘iPhone SE2’ should sell like hotcakes

Guess what can’t run iOS 13? Millions of iPhone 6’s that are still in use, says analyst Amit Daryanani.

From a note to clients that landed on my desktop Sunday:

There have been multiple media outlets reporting that AAPL is likely to release a low-end iPhone (SE2) in early 2020. Given a large install base of iPhone 6/6s (we estimate 200M+) and the deployment of iOS 13 (iPhone 6 not compatible) we see potential for a low-end iPhone as a catalyst to drive a healthy replacement cycle for the iPhone 6/6s install base. In addition, we think the lower priced iPhone could help spur demand in emerging countries as well. The expectation is that the new SE will be similar to the 8, with a 4.7’ LCD screen and an A13 chip. We expect this phone to replace the current iPhone 8 (the 8 sells for $449, while the previous SE sold for $349). The low expected price point should help incentivize some users with very outdated models to upgrade as the A13 chip would offer a significant step up in performance vs. an iPhone 6/8 (note, iPhone 6 users cannot upgrade to iOS 13). Net/Net: Apple continues to make changes to the traditional “2-iPhones/year” model, which may drive upside vs. consensus expectations for the remainder of FY19 & into FY20.

Maintains Outperform rating and $247 price target.

My take: The compatibility cut-off for iOS 13 is iPhones older than the iPhone 6s. Wish he’d provided an estimate for how many of those devices are still in use.

8 Comments

  1. Dan Scropos said:
    The newer hardware inside of a legacy handset is noteworthy because this should allow the phone to support all of the services that Apple offers. A legacy price point plus updated hardware should equal an insane amount of units sold.

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    October 15, 2019
  2. Jerry W Doyle said:
    Amit Daryanani does give a figure of 200M+. That is somewhat of a working figure. I assume it does not include significant millions of iPhone units above that number.

    I also think this is another reason that we are seeing good demand in China, too, since many of the battery replacements were in iPhone 6(s). I am one of those who took advantage of the battery replacement for my older iPhone 6 Plus, and I often use my 6Plus as well as my iPhone 5. While I have later editions of newer iPhones I still use my older units (such as my iPhone 6) for activities of exposure to possible harm. Whether it is kayaking, running on the treadmill inside the gym, working on-site where possible damage could occur I use older models during these periods.

    I know many folk who desire for Apple to manufacture a smaller iPhone consistent with the former iPhone SE model. Apple is moving forward with an updated iteration of the SE edition, not so much to fill the demand of individuals who prefer a smaller size form factor, but to leverage an attractive price point for India’s population who has trouble affording the existing iPhone model line-up.

    Apple started manufacturing the iPhone SE in India from its factory near Bengaluru. Apple now plans to ramp-up its SE production as Foxconn relocates its manufacturing base from China to India’s two assembly sites in the southern Indian states of Andhra Pradesh and Tamil Nadu.

    Apple is targeting a price point for the updated SE edition to attract Indians who present a huge untapped market for Apple. The Indian market is as huge as the China market. Additionally, India has the largest population of young people on the planet while China’s population grows old.

    Apple is focused on enlarging it’s ever growing installed iPhone base. As we know, once inside the iOS eco-system, iPhone users behavioral patterns result in increased usage of Apple multiple service offerings and leverages desire for additional Apple accessory products such as AirPods and Apple Watches.

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    October 15, 2019
  3. Gregg Thurman said:
    A legacy price point plus updated hardware should equal an insane amount of units sold.

    Unlike the original SE, the “SE2” will have the screen size of the base iPhone 6 in the form factor of an iPhone 5. This is a major upgrade over the iPhone SE, not to mention the internals.

    The iPhone 6 Plus replacement is the 64MB iPhone 11 at $649.

    I see a 128MB iPhone “SE2” priced at $549, while a 64MB iPhone “SE2” will be priced at $449.

    An iPhone 6 user, no matter they bought it 2nd year or used, will get a far superior replacement for less than they originally paid for their 6.

    I do not see a $399 price point, except if Apple bundles Apple TV+, and then it would be a net $389.

    1
    October 15, 2019
    • John Frantz said:
      I read somewhere that Apple was planning on cramming the face id sensors into the top bezel thus removing the need for a notch. If that happens they would be able to offer a “fullscreen” version of a smaller phone, i.e. a 6 sized screen in a 5 sized phone. I don’t think they would need to make that a cheaper phone.

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      October 15, 2019
  4. Robert Paul Leitao said:
    Unit sales are good. Unit sales with high levels of services attachment is much, much better. As Apple releases more advanced services with much higher margins per revenue dollar than hardware sales, the company can moderate handset prices in favor of greater services engagement.

    The iPhone era as we once knew it is coming to an end. It’s time to stop counting unit sales alone and look to user engagement as the measure of success. It’s likely the length of time, on average, an iPhone remains in active use has reached its practical limit. This may lead to a strong multi-year upgrade cycle. How effectively Apple engages its customers to deliver higher levels of service engagement will determine the company’s success.

    2
    October 15, 2019

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