Apple’s iPhone SE launch is a test run for the main event

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Apple Inc. showed that it’s not letting the COVID-19 pandemic slow it down too much as the company debuted its long-awaited second-generation iPhone SE device Wednesday.

Apple AAPL, -0.91% skipped a launch event and unveiled the phone via a press release, so the announcement lacked the fanfare that typically accompanies the debut of a new iPhone, but the news gave analysts more confidence in the company’s ability to maintain business operations and attract smartphone customers even as the pandemic rocks the economy.

The iPhone SE launch can be viewed as a trial run for Apple’s main event: the debut of its flagship 5G iPhone, which is expected out later this year. With the SE, Apple gets to test out how to build, market, and ship a new phone in the midst of a global health crisis.

Apple reportedly had been planning to debut the phone in March, with the launch pushed back due to the COVID-19 outbreak, which disrupted Apple’s supply chain as China extended its Lunar New Year holiday. But that didn’t set back the iPhone SE too much, as the device will become available April 24, with pre-orders starting April 17.

Shares of Apple were down 0.9% in Wednesday trading, and they’ve dipped 8.6% over the past three months as the Dow Jones Industrial Average DJIA, -1.86% has lost 19%.

Apple’s second-generation iPhone SE starts at $399 for a 64GB model and is meant to be especially appealing in emerging markets where consumers lower-cost devices are more popular. The device features Apple’s A13 Bionic chip, which the company calls “the fastest chip in a smartphone” and a single-camera system that supports Portrait mode.

Unlike some newer models, the iPhone SE still has a physical home button and a 4.7-inch retina screen. It will be available in black, white, and red, and those who purchase the device will be eligible for a one-year free trial of the Apple TV+ service.

“The first iPhone SE was a hit with many customers who loved its unique combination of small size, high-end performance and affordable price; the new second-generation iPhone SE builds on that great idea and improves on it in every way,” Apple’s vice president for worldwide marketing Phil Schiller said in a release.

The announcement made some analysts more upbeat about Apple’s near-term prospects.

“While the launch and much of the specs/pricing are in-line with broader expectations, we would view the announcement as positive in light of the current economic environment,” wrote Wells Fargo’s Aaron Rakers. “We believe the iPhone SE will appeal to users of older devices such as the iPhone 6/6S/7, and could spur those users to upgrade as a COVID-19 recovery materializes.”

The original SE model only accounted for about 7% of iPhone shipments during its lifetime, Rakers said, citing IDC data, but he still views the presence of a low-cost phone as playing “an important role in onboarding customers to Apple’s expanding product / service ecosystem.” Rakers rates Apple’s stock at overweight with a $315 target.

Read: Can Apple make new iPhones while dealing with coronavirus, and who will buy them?

Evercore ISI’s Amit Daryanani said that the iPhone SE “should help Apple regain some of the share it has lost in more price-sensitive markets like India and China.” It could also prompt consumers in developing markets who have phones more than three years old to consider an upgrade, he said, while maintaining an outperform rating and $325 target price.

Raymond James analyst Chris Caso wrote that while the iPhone SE is $50 cheaper than the iPhone 8 was, it will likely have similar margins because Apple was able to trim some costs for this newer device.

Apple has removed the older iPhone 8 and 8 Plus from its lineup as it added the iPhone SE, which Caso said “fixes a problem in Apple’s lineup, in that a dual camera phone (iPhone 8 Plus) was cheaper than the single camera iPhone XR.”

He has an outperform rating on the stock.

RBC Capital Markets analyst Robert Muller chimed in that the SE serves “as a reasonable option for customers with budgets that are compromised because of COVID-19 and/or, [who] due to stay-at-home orders, are spending significant amounts of time on one’s phones and are noticing performance deficiencies.” At the same time, he cautioned that the device might cannibalize sales of more expensive models.

Muller rates the shares at outperform with a $345 price target.

Originally Posted on MarketWatch

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