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How Will the New iPhone Impact Apple’s Average Selling Price?

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Apple current ASP around $650

In fiscal 1Q16, Apple’s (AAPL) ASP (average selling price) for the iPhone (AAPL) rose to $690.50 from $687 in fiscal 1Q15. It was driven by healthy demand for the iPhone 6s and 6s Plus. They were launched in September last year.

With the launch of the iPhone SE, the ASP will fall to around $650. With an ASP of $399 and estimated sales of 17 million units, the iPhone SE would generate $6.9 billion in additional revenue. According to J.P. Morgan analyst (JPM) Rod Hall, a conservative gross margin estimate of 40% would generate $2.8 billion in incremental profit for 2016.

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How has the four-inch phone performed historically?

Apple shipped 30 million four-inch iPhones in the last year. This accounted for 13% of the total iPhones sold in 2015. The ASP of these phones was ~$300. Analysts expect the iPhone SE to boost the ASP in the four-inch segment as it will be sold in the range of $399–$499. However, the overall ASP will decline.

The four-inch smartphone market fell from 17% to less than 10% in one year. Customers are moving towards larger screens. Apple is trying to penetrate the four-inch smartphone market although the market is shrinking.

New iPhone can compete with other low-cost smartphone makers

The new iPhone SE will help Apple compete with other low-cost and high specification smartphone manufacturers such as China’s (FXI) Xiaomi and One Plus based on Google (GOOG) Android. Xiaomi is reportedly looking to enter the US smartphone market by 2017. It faces competition from Korea’s (EWY) Samsung (SSNLF) as well.

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