Apple's (NASDAQ: AAPL) iPhone sales have been slumping as rivals Huawei and Samsung continue to win over more customers thanks to their broad range of offerings that cover several price points. IDC analysts report that Samsung's and Huawei's smartphone shipments increased by 5.5% and 8.3%, respectively, during the second quarter of 2019.
The two companies held just over 40% of the total smartphone market during the quarter, while Apple was languishing in third place with 10.1% market share. That was not surprising as iPhone shipments crashed 18.2% year over year, but Cupertino is now planning to arrest the slide with a new device that has the potential to fly off the shelves.
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Apple plans to expand the iPhone universe
The iPhone revenue trend over the past year clearly shows that Apple's strategy of sticking to the high-end smartphone market isn't working.
Data source: Statista, Chart by author
Apple's iPhone sales have plunged on a year-over-year basis over the past two quarters, so there is a need for change in the iPhone strategy. Apple is unable to attract new users into its ecosystem if it creates a high barrier to entry and restricts itself to the premium market.
Apple seems to have realized this, and that's probably why, rumor has it, the company is looking to bring an affordable iPhone to the market in 2020. Citing unnamed sources, Nikkei Asian Review said that Cupertino now aims to win back market share in emerging markets such as China and India through a cheaper device.
This rumored iPhone model is expected to sport a roughly 4.7-inch screen, just like the iPhone 8 that was released a couple of years ago. Apple will reportedly equip the cheaper and smaller iPhone with an LCD display instead of an OLED screen to keep costs in check, though Nikkei's sources indicate that the device will share most of its components with the iPhones that will be launched this year.
There is no clarity about the price of this device.
Will a cheaper device work?
Apple has tested cheaper iPhones in the past. The company launched the iPhone SE back in 2016 for a starting price of $399 and even had some success with it. Apple reportedly sold 30 million units of the iPhone SE in 2016, accounting for more than 10% of the iPhones the company shipped that year.
But Apple didn't refresh the original iPhone SE with new features. Sales dropped to just 10 million units in 2017 and 2018, according to Yuanta Investment Consulting, and the device died a natural death last year.
It would be a smart move from Apple to have another $400 device akin to the iPhone SE that would help it target the lucrative midrange smartphone segment where the likes of Huawei and Samsung are making merry.
Counterpoint Research points out that sales of smartphones priced in the $151 to $300 range increased 14% last year. An affordable device will help Apple get closer to this price range and tap into the growth in demand for these devices, particularly in developing countries.
It makes sense for Apple to go a bit low on pricing so that it can attract more customers. Such a strategy could also help improve sales of higher-end iPhones in the future when customers buying an entry-level device upgrade.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, and long January 2020 $150 calls on Apple. The Motley Fool has a disclosure policy.
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