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Why a $399 iPhone Could Give Apple's Sales a Big Boost Next Year

Owning an Apple (NASDAQ: AAPL) device can be an expensive proposition for users who want to keep up with the latest and greatest model. Shelling out potentially $1,000+ every year just to stay current on the latest iPhone model is not an expense a lot of people can afford.

Granted, there are Apple enthusiasts out there who would go to great lengths to not be left behind, but for many, the simpler option has been to just avoid upgrading -- or to seek out cheaper, non-Apple alternatives.

It's that crowd that Apple may be targeting with its next cycle of model releases if one analyst is to be believed. Not only could that lower price result in more customers upgrading their devices, but it could also lure consumers away from Android phones.

Unknown caller showing up on a smartphone's caller ID.

Image source: Getty Images.

Will a $399 iPhone be launched next year?

Ming-Chi Kuo, an analyst from TF Securities, has had a strong track record in the past in predicting new releases from Apple. He believes that Apple in 2020 will unveil the iPhone SE 2, the successor to the original model, which was released back in 2016. Like the old SE model, the new version will also look to mimic an older phone -- the iPhone 8 in this case -- with some improvements along the way. The new SE 2 model, he suggests, will be priced at $399, which is a modest discount from today's $449 iPhone 8 price tag.

However, the allure of a new release plus improved specifications could prove enticing, especially to users who are still using older phones. According to September numbers, the iPhone 7 has far and away the largest market share of active iPhones at 5.6%. The 6S and iPhone 8 were second and third, respectively. The iPhone X came in fourth, just ahead of the iPhone 6.

What's clear from the numbers is that many users have simply not upgraded to the latest iPhone, and that could be a concern for the company.

iOS 13 is leaving older devices behind

One of the big problems for Apple is that, as users stay with older phones, there's a danger that there will be fewer users on the company's latest operating system. iOS 13, which was launched in September, will not work on the iPhone 6 and older devices. That could spell trouble for iPhone 7 users if, in the next update to the system, users of today's most popular iPhone are not able to download the latest software.

It's an important consideration for the company, because it's in the interest of app developers to have as many users as possible running the latest software. Introducing a less-expensive SE 2 with the right chipset to run the latest software could sway some lagging users to upgrade their devices, which would enable them to access the latest operating system and use the latest apps and services. That services revenue is an income segment Apple has come to rely on to continue producing revenue growth.

Key takeaways for investors

With concerns about macroeconomic conditions perhaps getting worse, Apple might have more incentive than ever to give iPhone users affordable alternatives that stay current with the latest operating system. There's clearly a demand for a cheaper iPhone: Although it hasn't been a popular device in the U.S., the SE model has been among the top five iPhones in the U.K. and several other European countries.

By providing price-conscious users with more options, Apple could benefit from more upgrades and more users on its latest iOS, which could inject the company's top line with a lot more sales next year should the SE 2 devices hit the market as predicted. And that could make for a very strong 2020 for Apple, which could help the tech stock become an even better buy than it already is.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Apple. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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