Apple is the Mercedes of consumer tech. Or maybe BMW. Or some other high-end German auto manufacturer.
It’s the company to which nearly all others look for direction. When Apple reveals an innovative new design language or launches a new product, it creates ripples throughout the market. Suddenly, the entire industry is creating products in Apple’s image.
But to say Apple is merely a trend-setter understates the company’s position as arguably the figurehead of innovation in consumer technology. Apple isn’t just setting technology trends; Apple’s vision sets precedents and starts movements that allow the trends to exist in the first place.
As great as it must feel to be Apple in this scenario — and as humbling as it must feel to be any of the many companies copying Apple at every turn — it’s not all sunshine and rainbows. You can claw your way to the top of a mountain, but there’s not a lot of stable ground up there. One wrong step and your toppling back down the mountain, undoing years of the hard work needed to get up there.
I don’t want to discount Apple’s successes in 2018: Apple Pencil support for iPad was a welcome addition; iOS 12 has given new life to iPhones as old as the 5S; Apple Watch Series 4 is literally saving lives; and that’s just a few highlights. Looking back, though, 2018 was a pretty tough year for Apple as certain missteps ended up affecting the company’s bottom line.
Among Apple’s most controversial moves in 2018, there’s one I wanted to highlight for an important reason: With no second-generation iPhone SE in sight, it seems Apple has exited the “budget flagship” market.
In fact, I’ll take it one step further: I’m convinced Apple won’t be releasing any more budget iPhones, and here’s why.
Apple’s product portfolio is varied. The company generates revenue from services like iTunes and Apple Music to accessories like AirPods and the Magic Keyboard, from home entertainment devices like Apple TV 4K to personal computing devices like the MacBook Pro. But sales for most of these aren’t that impressive (though Apple’s profit margins certainly are).
It’s actually the iPhone that accounts for the majority of Apple’s revenue. Since its debut in 2007, iPhone has pushed Apple’s earnings to such incredible heights that the company has become the first trillion-dollar company in history. With so much of Apple’s revenue riding on the game-changing device, you can bet there would be a significant drop in Apple’s revenue if people starting buying less iPhones.
And that’s exactly what we’re seeing.
After a moderate fourth quarter, revenue for Q12019 — which, to be clear, is comprised of October, November, and December, encompassing the holiday shopping season — was much lower than Apple originally projected. With the cost of new iPhones rising, revenue would’ve increased even if unit sales had only remained steady, but there were fewer iPhone units sold during the period. The implication is that demand has waned, or it’s possible there wasn’t much demand for Apple’s expensive new iPhones in the first place.
The first sign of trouble was in 2017, the year iPhone X was released. At a starting price 50 percent higher than the previous year’s baseline model, iPhone X unit sales were reportedly flat although Apple’s revenue increased. How? Because even though Apple sold roughly the same number of units as the year before, the average cost of an iPhone had increased. When you sell the same number of products but mark up the price, you still see a bump in revenue.
Of course, it’s not just the iPhone that’s gotten more expensive. Apple has raised prices across nearly all of the company’s portfolio. But with the iPhone driving profits, the implication is this: If iPhone sales remain flat or start to fall, Apple will have to keep raising the price of the iPhone each year to maintain year-over-year revenue gains. As you can see, it’s not a coincidence Apple has decided to stop reporting iPhone unit sales publicly.
If iPhone sales remain flat or fall, Apple will have to keep raising the price of the iPhone each year to maintain year-over-year revenue gains.
Even if 2017 was an outlier, the launch of new iPhones in the fall is supposed to give Apple a shot of revenue adrenaline in the final stretch, allowing for a strong finish as the company crosses the fiscal finish line. But for the second year in a row, that didn’t happen. Doesn’t it seem plausible, if not likely, that increasing the prices for new iPhones has led to lower demand?
About a week ago, Apple CEO Tim Cook sent a letter to investors. You can read the letter for yourself on Apple’s website, but it warns investors that Apple’s 1Q2019 revenue will be $9 billion lower than was originally projected.
The letter largely blames China’s economy for “the vast majority of the year-over-year iPhone revenue decline” while also suggesting that buyers are still adapting to the extinction of carrier subsidies.
In a recent interview with CNBC’s Josh Lipton, Cook reiterated many of the same factors to explain lower-than-expected iPhone sales.
Besides slowed growth in developing markets and the lack of subsidized pricing through carriers, Cook pointed to iOS 12 and the $29 battery replacement program as having encouraged users to keep their old iPhones instead of buying new ones.
As you may recall, Apple started the battery replacement program in late 2017 in hope of masking the stench of the “batterygate” controversy, which had garnered accusations of planned obsolescence. According to Cook, many with older iPhones decided not to upgrade because they could get new batteries for cheap. This would remove the performance caps that Apple had imposed on them, restoring their iPhones to their former glory, especially when paired with iOS 12. In fact, Apple went to lengths to ensure that iOS 12 would make older iPhones faster, so Cook is probably right in assuming the battery replacement program and iOS 12 factored into the weaker sales of 2018 iPhones.
However, Cook asserted that complicated trade relations between the US and China was ultimately the biggest factor. China represents a ton of untapped sales potential for Apple, so there’s probably some truth to that, too. You can see the full interview in the video below if you want to hear more of what Cook has to say about it.
Meanwhile, critics and analysts have suggested poor iPhone sales are a sign of market saturation; at this point, most people who want an iPhone already have one, and that’s a difficult hurdle to overcome, especially with people upgrading less frequently.
It’s also quite possible that Apple priced the 2018 iPhones out of the developing markets the company claims to be targeting. After all, if you live in China and want to buy a new smartphone, are you going to buy an iPhone XS for $1,000 (¥6800) or more, or are you going to get the latest Vivo or Xiaomi Android smartphone that’s manufactured locally and can do basically anything iPhone XS can do at a fraction of the price?
Not surprisingly, Cook largely sidestepped the topic of ballooning iPhone prices — a problem that we’ve seen across most of Apple’s product line for that matter — which has been one of the main criticisms of recent iPhones.
Price increases for the iPhone used to be pretty rare. In fact, after carriers stopped offering subsidized pricing on smartphones, forcing us to start paying full MSRP if we wanted to buy new iPhones, we could at least count on a consistent starting price from year to year.
That starting price used to be $649. With the release of iPhone 8 in 2017, it jumped to $699, a disappointing increase, but it wasn’t too alarming. It was only a $50 increase after generations of a consistent price, so many people gave Apple a pass. Plus, even at the higher price, iPhone 8 seemed positively cheap compared to the $999 price tag on the new iPhone X.
But apparently, the price increase for iPhone 7 set a precedent because in 2018, the price jumped again.
Matching the increase from iPhone 7 to iPhone 8, the 2018 iPhone lineup started at $749 for iPhone XR. You could argue that iPhone XR is a better device than iPhone 7 and justifies the extra $100, but value is subjective. While some might say iPhone XR is worth its $749 starting price, especially compared to Apple’s more premium models, many people will fixate on how each new generation of iPhone is more expensive than the one before. And at this point, can you blame them?
As the 2018 iPhones were being unveiled on stage, Apple was eliminating the only budget option on the lineup.
To make matters worse, as iPhone XS, iPhone XS Max, and iPhone XR were being unveiled on stage during Apple’s fall 2018 event, iPhone SE was being discontinued. So not only are iPhones getting more and more expensive, but Apple has now eliminated the only budget option we had.
So if you’re looking to get a new iPhone in 2019, there’s not much choice anymore. Buyers are essentially being forced to accept Apple’s higher starting price in the absence of a true budget iPhone. Naturally, consumers and critics alike are getting more vocal in their calls for an iPhone SE successor.
Unexpected Value: iPhone SE
Apple unveiled the iPhone SE , which stands for Special Edition, in March 2016 at a special spring event.
Both for consumers and the industry at large, iPhone SE was a very un-Apple device for Apple to release. The iPhone 6 had just jumped in size and received a completely new design from the previous generation. Then iPhone SE was released, featuring a smaller, compact form with its design virtually indistinguishable from the previous-generation iPhone 5.
Even more surprising was the fact that iPhone SE notably featured most of Apple’s up-to-date, flagship-level technologies in spite of the low starting price; for just $399, you got the same custom A9 processor as iPhone 6S in addition to a 12 MP camera with 4K video recording and a bigger battery.
In fact, the only significant compromises were the lack of 3D Touch and the use of first-generation TouchID instead of the faster second generation. But, again, considering its low starting price (which eventually settled to $349), the iPhone SE offered uncharacteristically great value for a product made by Apple.
iPhone SE never became a top seller although it eventually gained a cult following.
The problem was that iPhone SE didn’t become a top-selling iPhone. Throughout its lifespan, its defining characteristic was that it offered an affordable point of entry to the iOS ecosystem although it eventually gained somewhat of a cult following among certain Apple fans.
Naturally, after iPhone SE had been the baseline of the iPhone lineup for a couple of years, consumers were ready for the obligatory refresh. Though iPhone SE offered a great cost-to-performance ratio in 2016, a refresh could bridge the performance gap that grew as iPhone SE’s A9 processor was succeeded and replaced, first by the A10 Fusion chip in iPhone 7, then again by the A11 Bionic in the iPhone 8, iPhone 8 Plus, and iPhone X .
Sure enough, we heard through the grapevine that Apple was working on a new version of the budget iPhone.
Details varied, but the iPhone SE successor — alleged to be called either iPhone SE 2 or iPhone X SE (with suffix and modifiers very carefully arranged)— seemed to have the same purpose as the original, which was to be a compact, low-cost iPhone offering great performance and most of the latest features.
Much of the disagreement surrounding the naming scheme for the iPhone SE 2 was due to contradictory reports as to whether the device would retain its iPhone 5-era design or whether it would embrace the new iPhone X aesthetic.
Some insisted (or maybe hoped?) iPhone SE 2 would look like an iPhone X from the front with a nearly bezel-less, edge-to-edge display. These reports were largely informed by supposed designs for screen protectors and cases; if legitimate, the implication was that iPhone SE 2 would have a bezel-less, notched display similar to iPhone X, iPhone XS, iPhone XS Max, and iPhone XR.
Of course, the notch would become one of the defining characteristics for 2018 smartphones overall as its was imitated by nearly every smartphone manufacturer after the iPhone X debuted in late 2017; however, for Apple’s purposes, the notch only exists to house biometric sensors for Apple’s proprietary FaceID. So the implication was that iPhone SE 2 would feature FaceID although the high cost of FaceID components made it an unlikely inclusion in any budget iPhone.
Following these reports, renders were made to show how the device might look if it turned out to be real.
Assuming the case designs and resulting renders were accurate, iPhone SE 2 would’ve been a truly fascinating device, the lovechild of the bygone iPhone 5 and the more futuristic iPhone X. Provided Apple could keep production costs and, by extension, the MSRP down, iPhone SE 2 could’ve easily outsold the original iPhone SE, possibly becoming a top seller like the original iPhone SE never could.
These weren’t just pipe dreams as Apple’s own suppliers confirmed plans for iPhone SE 2.
These weren’t just the pipe dreams of iPhone SE fans and anyone who wanted cheaper iPhones; reports from Apple’s own suppliers all but confirmed plans for iPhone SE 2, offering estimates for possible production schedules and ship dates.
In early August 2017, Wistron Corp. — a low-volume manufacturer based in Taiwan that Apple recruits when iPhone demand is high — was working on expanding its production base to accommodate a new compact Apple smartphone, which many presumed to be an updated iPhone SE.
Then came a tentative ship date: In late November 2017, Economic Daily News in Taiwan reported Apple had been eyeing a release date in the first half of 2018 for the iPhone SE 2, which would’ve been consistent with the spring release of the original iPhone SE.
January 2018 brought another report of iPhone SE 2 launching in 2018. Shortly thereafter, there was a rumor iPhone SE 2 would feature a glass rear panel, suggesting the addition of the wireless charging capabilities that the iPhone has had since 2017.
A Seed of Doubt
Just as rumors pointed to Apple gearing up for the release of a next-generation iPhone SE, Ming-Chi Kuo, an analyst with KGI Securities who is known for predicting Apple’s products with uncanny accuracy, planted one of the first seeds of doubt.
iPhone SE had very little chance of being released because Apple had exhausted its resources developing iPhone XS, iPhone XS Max, and iPhone XR.
In late January 2018, Kuo reported iPhone SE 2 had very little chance of being released because Apple had exhausted its resources on the three flagship models to be released in 2018. Of course, those three models ended up being iPhone XS, iPhone XS Max, and iPhone XR.
However, rumors persisted — though at a slower pace — in spite of Kuo’s doubt.
For instance, there were specifications and other details of the iPhone SE 2 reported in April 2018. According to these leaks, Apple intended to keep production costs (and, by extension, the eventual retail price) down by omitting the 3.5mm headphone jack and using iPhone 7’s A10 Fusion chip instead of the A11 Bionic chip used in iPhone 8 and iPhone X.
For all intents and purposes, the axe was decisively dropped in July 2018 as BlueFin Research told MacRumors that Apple had nixed all plans to proceed with iPhone SE 2.
We’ll probably never know for sure whether iPhone SE 2 was ever actually in the pipeline; however, even if it was planned initially, it’s unlikely that we’ll ever get an iPhone SE 2 at all.
It’s been four months since the launch of the 2018 iPhones, an event that coincided with iPhone SE being removed from Apple’s lineup, which, in and of itself, allegedly happened because Apple retired its A9 processor. So aside from Apple quickly unloading the last iPhone SE units at a discounted $249 price, which took only 24 hours, iPhone SE is gone from Apple’s catalog, and anyone waiting for a next-generation iPhone SE has little cause for hope.
If you ask me, the writing is on the wall: Apple won’t be making another budget iPhone.
No More Budget iPhone?
Budget smartphones, or smartphones that cost roughly $300 or less, are pretty common nowadays. In some cases, these budget devices offer great bang for your buck. Some of the more recent notable examples include the Moto G6 for $240, LG Stylo 4 for $250, Huawei Mate 20 Lite for $290, and, of course, the impressive Pocophone F1 for $299.
If you have a tad more to spend, you can find a used or refurbished Samsung Galaxy S8 for just barely over $300. Or you can get the new Nokia 7.1, an Android One device with the design and nearly all the features that top-shelf Android flagships have for the bargain price of $350.
I’m not sure where the phrase originated, but I completely agree: “Good phones are getting cheap, and cheap phones are getting good.”
Of course, you might’ve noticed that the smartphones mentioned above are Android smartphones. What about iPhones?
When carriers did away with subsidizing smartphones, we had to start paying full retail price for new smartphones. So Apple’s decision to create the iPhone SE was very timely: Instead of paying $649 or more, you could buy an iPhone for under $400 without making a ton of compromises. Suddenly, people who preferred iOS to Android had their own Pocophone.
Surely, iPhone SE would be a great seller, right?
Low iPhone SE Sales
At its peak, iPhone SE was only ever the third-best selling model, accounting for 11 percent of total iPhone sales.
From September 2016 to its discontinuation in September 2018, iPhone SE was never a top-selling iPhones. Even at its peak, iPhone SE never accounted for more than 11 percent of iPhone sales as the third-best-selling iPhone, and only by a slim margin. Meanwhile, both iPhone 7 and iPhone 7 Plus nearly tripled the sales of iPhone SE during that period, accounting for 28.5 percent and 29.5 percent of iPhone sales, respectively.
After September 2017, iPhone SE sales dropped substantially, remaining somewhere between 5.5 percent and 8 percent until the device was pulled in fall 2018.
Imagine that you’re Tim Cook looking at these numbers. Everybody has been asking for a second-generation budget iPhone, but sales numbers show that when a lower-cost option is available, the majority of customers keep buying the more expensive iPhones. If customers are willing to pay more for high-end iPhones, does it make sense to produce a cheaper device that, at best, only about one in ten consumers would be interested in buying?
With some context, positioning the iPhone more as a luxury item starts to make sense. Like voting on a ballot, Apple’s consumers have been casting their votes on higher-end iPhones, so we can’t really blame Apple for moving away from budget smartphones that don’t sell well.
If you’re miffed about the death of iPhone SE 2, there are, in fact, cheaper iPhones available for people on a budget. But you’re not going to see them in retail stores.
Apple gave customers the lower-cost iPhone they’d long been asking for, but many of them decided not to buy it. So if you’re Apple, do you produce a second generation knowing the first generation didn’t sell well, or do you ditch the budget-iPhone idea altogether?
It seems Apple chose the latter. However, it doesn’t take away from the fact that budget iPhones are already available, not to mention plentiful. Specifically, I’m talking about used iPhones on the “gray market.”
The gray market refers to the buying and selling of used iPhones on the secondhand market. It’s comprised of the many people selling their used devices after upgrading, which essentially creates an unofficial market of budget iPhones. So all those listings for iPhone 6S, iPhone 7, and iPhone 8 on eBay, the Amazon Marketplace, services like Swappa, and yard-sale apps like LetGo are the gray market for iPhones.
Apple won’t invest resources in creating new budget iPhones because the secondhand market offers a continuous supply of discounted iPhones.
Apple doesn’t need to invest in R&D, sourcing parts, manufacturing, and distribution for a budget iPhone because we already have access to all the discounted iPhones we could ever need in the secondhand market. And each year when new iPhones are released, millions more iPhones will revitalize the secondhand market as users who upgrade to new iPhones sell their old ones.
Plus, any post-2016 iPhone models on the gray market will have better specs than iPhone SE, and some of these used iPhones would be cheaper than buying a new iPhone SE from Apple for $349.
In other words, Apple doesn’t need to sell a budget iPhone because the current-generation iPhones purchased at full retail cost today become budget iPhones as consumers use them and eventually sell them to on the gray market when they upgrade. And more devices are listed on the gray market every day, so as long as Apple is selling smartphones, the gray market is a renewable source for budget iPhones.
Last Year’s Flagships
Of course, the gray market isn’t the only way to get an iPhone on the cheap. Depending on how you look at it, Apple actually offers new budget iPhone options every year.
With the official unveiling of new iPhones each year, the MSRP of each preceding generation still in production is decreased. For instance, when iPhone 8, iPhone 8 Plus, and iPhone X were announced in the fall of 2017, iPhone 7 and iPhone 7 Plus became previous-generation devices, which warranted price cuts.
The iPhone SE was still in production when iPhone 7 got its price cut, so if you wanted a new iPhone but didn’t want to spend $699 or more for iPhone 8 or iPhone X, you could choose iPhone SE from $349, iPhone 6S from $449, or iPhone 7 from $549. Though $349 isn’t exactly chump change, it’s certainly more palatable than iPhone X’s thousand-dollar starting price.
With iPhone SE discontinued, the cheapest iPhone available is iPhone 7 for $449, meaning the cheapest iPhone available today is $100 more than last year.
To be fair, iPhone 7 was a great device at launch, and it’s still a compelling option today, especially for the price. Though it was divisive as Apple’s first iPhone without the seemingly requisite 3.5mm headphone jack, iPhone 7 is otherwise a full-featured flagship. But if you’re shopping for a new iPhone on a budget, which would you rather buy: a 2016 iPhone for $449 or an iPhone SE 2 with the latest A12 Bionic processor for $100 less?
Regarding iPhone SE 2 not materializing, maybe knowing what could’ve been is what makes this so disappointing for some. Even though the data suggests a limited audience for budget iPhones, there will always be situations where a low-cost iPhone with current-generation performance hits the sweet spot.
Where Should Apple Go From Here?
It’s a great time to be a lover of tech, particularly mobile tech as budget and mid-range flagships are slaying in the Android smartphone market. Though priced higher than a $349 iPhone, the OnePlus 6T is a prime example of how to offer flagship-level specs, design, and performance at a reduced cost.
Apple has never really catered to budget-minded consumers, but the number of products priced under $1,000 is shrinking fast.
For better or worse, Apple seems to have evacuated the budget smartphone sector after just one attempt. Granted, Apple has never really catered to budget-minded consumers with the vast majority of the company’s hardware starting at $1,000 or more and a shrinking number of devices, like iPods and iPads, priced lower than that. This is why it was so unusual for Apple to make a budget iPhone in the first place.
The problem is that it seems Apple is now trying to close a door that maybe the company never should’ve opened in the first place. After all, when you’re offering such an inexpensive iPhone on the lineup, all the flagship iPhones seem that much more expensive by comparison.
Whether or not there’s a new iPhone SE in the future, the prices attached to Apple’s products are climbing. In many markets, Apple is coming dangerously close to pricing the iPhone as well as most of Apple’s other products out of reach. For consumers who can’t (or don’t want to) pay such exorbitant prices, the fact that Apple offered inexpensive options in the past but no longer offers those options now will undoubtedly leave a bad taste in people’s mouths, almost like biting into a rotten apple.
Honestly, I hope I’m wrong about this, but if Apple wants to curb the decline in iPhone demand and for sales to resume an upward trajectory, one of two things will need to happen, and sooner rather than later.
Apple needs to either lower the margins on iPhones to make them more affordable (or even just less expensive), or there needs to be a new budget option so consumers at least have the illusion of choice. Because as the numbers have shown, most buyers go for the premium iPhones anyway, but if Apple puts a budget model on the table, at least they won’t feel like they’re being forced to pay the ever-growing “Apple tax.”
Apple’s current pricing structure gives consumers only high- and higher-priced models to choose from. But it seems buyers are starting to realize there’s still one other option, which is to save themselves the trouble, and potentially some buyer’s remorse, by not buying new iPhones at all.