Apple takes a bet at a shrinking market with its 4-inch iPhone SE

The iPhone SE has already generated attention that is only reserved for an Apple product. The much-touted 4-inch iPhone shared the same internals as in the iPhone 6S and iPhone 6S Plus, including the latest 64-bit A9 chip, a 12-megapixel camera featuring 4K video recording.

However, the iPhone SE is steeply priced at Rs 39,000. The price becomes more unfathomable when seen in comparison with the iPhone 6S which is retailing in the range of Rs 42, 000-Rs44, 000 per unit (16 GB) at various retail stores in India. In its defence, Apple said that the iPhone SE is its cheapest offering.

The phone shares its looks with iPhone 5S which is now retailing for under Rs 20,000 and is expected to get a further price cut once the iPhone SE hits Indian shores in the coming weeks.

Why a 4-inch iPhone?

According to the Monthly Market Pulse Sales, the market for 4-5” phones has dropped from 12% to 7% from December 2014 to December 2015.

Niel Shah, Research Director, Devices & Ecosystems, Counterpoint Research, in a blog dated March 21, 2016, said, “We believe the total addressable market or demand for 4″ smartphones is shrinking. In fact, it has shrunk from 17% to less than 10% in just one year as consumers are moving towards buying bigger screen devices.”

Apple's VP Greg Joswiak admitted that a large number of customers prefer the larger display iPhones, in a report by The Verve.

However, Apple sold nearly 30 million 4-inch iPhones last year.

Shah believes that more expensive 4-inch iPhone SE replaces the older generation 4-inch models which in turn increases the barriers to entry into the Apple ecosystem. He said, “Only entry point now in sub Rs 20,000 for iPhones will be through second-hand market and refurbished iPhones.”

However, Anshul Gupta, Research Director, Gartner believes that we should not look at Apple competing with other 4-inch phones and should be looked as getting a new premium phone with high-end specifications and priced much lower than other high-end iPhone's.

“Many people want to buy the latest iPhone but the price is a limitation and would not like to settle for phone with old specifications. This is the market Apple is targeting,” he said.

However, this argument does not hold so much as the difference in the specifications of the iPhone SE and iPhone 6S is just the screen size the absence of 3D touch on the SE.

The 4-inch market

The market demand in India for 4-inch phones has been declining. According to a report by Counterpoint Research, in just one year from December 2014 to December 2015, the 4-inch phone shipments have declined by 55%.

And the remaining market of 4” phones in India comprise of a very shrewd price point of under $100 (Rs7000). Compared this to the iPhone SE which will go on sale in India at Rs 39,000, scales suddenly tilt towards iPhone 6 which has a bigger screen and sells for in the range of Rs 32000 or iPhone 6S.

Moreover, 4-inch iPhones in the quarter ended December 2015 contributed to around 10% of the total volumes in Indian market.

The 5-5.5” and 5.5-6” screen phones are the two categories that show an increase in market share. The Monthly Market Pulse Sales numbers show that the market share of the said two categories increased from 31% to 38% and 23% to 30% from December 2014 to December 2015, respectively.

“Almost 75% of 4-inch phones shipped in India in 2015 were below $100 (Rs 6,686.5) price points. And to put into context for iPhone SE, phones above $300 (Rs 20,000) corresponded to just 2% of the total 4-inch phones shipped in the country in 2015,” the report said.

When asked whether there is a market for 4-inch phones at higher price points Shah of Counterpoint said, “Absolutely not. Though there might be a niche segment of population who still prefers a smaller form-factor who want to flash an iPhone but are not heavy smartphone users”. He added, “The consumers who are buying an iPhone just want to buy the best iPhone.”