The record-high inflation seen in the broader economy is hitting Apple Inc.'s new budget-tier iPhone.
With prices starting at $429, the new iPhone SE costs 7.5% more than its 2020 predecessor. Apple attributed the higher price point to the cost of adding 5G components and a faster processor. The company previously offered 5G network compatibility only on its higher-end iPhones. The iPhone SE is available for preorder March 11 and will reach consumers March 18.
"The 'affordable' iPhone SE has become a bit less affordable," Neil Mawston, executive director of global wireless practice at Strategy Analytics, wrote in an email to S&P Global Market Intelligence.
But against a backdrop of supply chain shortages and inflationary pressures in the global marketplace, a "modest increase" in pricing should not affect overall demand for Apple's lower-end smartphone, Daniel Ives, senior equity analyst and managing director at Wedbush Securities, said in an email to Market Intelligence.
The iPhone SE remains "the fastest and most powerful phone at these price points by a wide margin," Ives said.
Analysts have long predicted that more consumers will upgrade their smartphones as more 5G network compatible options become available. Apple reported 9.2% year-over-year growth in its iPhone net sales during the quarter ended in December 2021, the first full quarter after its more expensive, 5G-compatible iPhone 13 went on sale.
Given that the storage capacity of the base iPhone SE model remains 64 GB, Apple could see many customers choosing to upgrade, bumping up the average selling price of the new phone, said Milan Ringol, an analyst for Kagan, a media research group within S&P Global Market Intelligence.
Apple is looking to appeal to eco-conscious customers. The iPhone SE includes some components built with 100% recycled materials, including rare-earth elements, tungsten and tin. Redesigned packaging for the iPhone also eliminates the outer plastic wrap used with previous models, bringing Apple closer to its goal of completely removing plastic from all packaging by 2025.
The changes will likely help burnish Apple's reputation as an environmentally friendly company without adding much to the phone's manufacturing costs, Ringol said.
Apple has been working to decarbonize its supply chain for some time, using more recycled metals or plastic and offering trade-in programs for old devices. By 2030, the company aims to have a net-zero climate impact across its entire business, including manufacturing supply chains and all product life cycles.
"Apple is an early green mover," said Strategy Analytics' Mawston. "Of course ... saying the company plans to go net-zero by 2030 may be easier than actually doing it."
An Apple spokesperson did not respond to an emailed request from Market Intelligence seeking additional comments on the company's new products and how it plans to achieve its environmental goals.
Supply chain shocks remain a headwind as the iPhone SE goes on sale. While COVID-19-related labor challenges are lessening in most parts of the globe, the war in Ukraine and boycotts of Russia will create some demand shocks in Europe.
Apple's stock was down 4.6% for the seven days ended March 10 amid wider market volatility. The stock did see a bump in price right after the iPhone SE was unveiled March 8, indicating investor enthusiasm.
In January, Apple CEO Tim Cook said the company expects to achieve solid year-over-year revenue growth and set a March quarter revenue as supply constraints become less severe. The company posted an all-time revenue record of $123.9 billion in its fiscal first quarter ended in December 2021, up 11% year over year.
Kagan's Ringol said Apple is likely to show improvement in its inventory management during the March quarter, but the company will still have to navigate supply-chain challenges as the iPhone SE goes on sale.
Meanwhile, Apple's new M1 Ultra chip, unveiled alongside the iPhone SE, is likely to stir up competition elsewhere in the market. Apple announced that its new, faster chip would be available in its Mac Studio and Studio Display.
"The new Mac Studio occupies a midpoint between the Mac mini and the Mac Pro, both in terms of performance and cost," Ringol said. "It should be attractive to a particular slice of the PC market."