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Analyst commentary from Jan Dawson, Chief Analyst at Jackdaw Research

Apple Attempts to Kickstart the Upgrade Cycle for iPhones and iPads

Apple today announced several new products, including a smaller iPhone and a revamped 10-inch iPad. The comment below may be attributed to Jan Dawson, Chief Analyst, Jackdaw Research. Jan may also be reached at 408 744 6244 or jan@jackdawresearch.com and is on-site at the Apple event in Cupertino.

Apple's announcements today are best seen as attempts to kickstart the upgrade cycles for both iPhones and iPads. Larger iPhones are still selling in huge volumes, but there's considerable evidence that some of those who own smaller iPhones are holding onto them rather than upgrading to the new, larger iPhones. Apple announced during the event that 30 million people had bought 4-inch phones in 2015, but the more significant number is all those who own smaller iPhones but haven't bought one since the larger devices launched. There's significant pent-up demand within Apple's base of iPhone owners who want a smaller iPhone with up-to-date specs and newer features. The iPhone SE is designed for this group, and should unleash a decent upgrade cycle over the coming months. During a period when iPhone sales overall have slowed following a massive upgrade cycle driven by the iPhone 6 launch, a few million more sales in the quieter spring and summer months should help Apple close the gap with last year's sales numbers. The $399 pricing suggests Apple really wants to sell this thing in large numbers, and the mix of features and pricing compares very favorably with the iPhone 5S, which it replaces in the lineup.

However, it's worth noting that this pricing doesn't get the iPhone down to the kind of prices needed to really spur sales in emerging markets, where older devices have been on sale for some time at similar or lower prices. In many of those markets, prices need to come down more significantly to make a real difference, and it's actually the larger-screened devices that will meet users' needs there better, rather than a new 4-inch device. As such, it will likely be refurbished iPhone 6 and 6S models which will be used to attract new customers in these markets, and not the iPhone SE, at least for now.

The new iPad Pro is an evolution of the iPad's identity. The iPad has always been first and foremost a consumption device for the vast majority of users. That started to change with the 12-inch iPad Pro last year, which was the first to really go after a productivity-centric target market aggressively. The change in naming for the mid-sized iPad is an indication that Apple really wants to go after the productivity market in a bigger way, by aiming its most popular iPad model at that segment. This is a move designed to boost upgrades, as it will be the first really meaningful change in what the 10-inch iPad can do in several years, but it's also intended to spur new people to buy an iPad to replace or augment a laptop they may have used in the past. At the event, Apple highlighted the 600 million PCs in use that are over 5 years old and pitched the new iPad Pro as the ultimate PC replacement. There was a serious clue that Apple was moving in this direction when it introduced the 12-inch iPad Pro last year, as Tim Cook referred to that device as "the clearest expression of [Apple's] vision of the future of personal computing". If that was the case, it was obvious that more of the iPad line (and perhaps the rest of Apple's product line) would move in this direction.

However, all of this also means a change in the identity of the iPad line – the people who will buy an iPad Pro going forward will in some cases be different people, and in many cases will be buying them for different reasons compared with past iPad purchases. It also raises the price of new 9.7" iPads by $100. That leaves questions about the role of the lower-end iPads in the lineup, including the aging iPad Air and the iPad Mini. If these never get upgraded or get upgraded less frequently it may signify that Apple is moving on from this part of the market, or at least sees it as less important going forward.  This, in turn, may well further depress sales of iPads even as the new iPad is clearly intended to boost sales.
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