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Apple Could Be Reusing the iPhone SE Playbook

Ashraf Eassa, The Motley Fool

Apple's (NASDAQ: AAPL) iPhone product strategy has generally been straightforward: Each year it introduces new iPhones to serve as its flagships, and it discounts older models in a bid to attack lower price points.

Apple altered the playbook slightly with its most recent product introductions. While it discounted the more mainstream iPhone 8 and iPhone 8 Plus, it eliminated the iPhone X from its lineup. That move made sense, as the iPhone X simply wouldn't have fit in the company's current official product stack. (Production of the iPhone X was reportedly restarted, although Apple doesn't offer the iPhone X through its own website or stores.)

Apple executive Phil Schiller onstage, in front of a giant image of a blue iPhone XR stacked on a yellow one

Image source: Apple.

Now, according to a report from Economic Daily News (via MacRumors), which itself cites a report from analysts with Fubon Securities Investment Trust, Apple is adding another twist to its midrange product strategy. Let's take a closer look.

Shades of the iPhone SE

If Apple follows its usual plan, then when the company releases its latest iPhones later this year, it should have replacements for the iPhone XS, XS Max, and XR available for sale. The current iPhone XR -- which starts at $749 -- should see a price reduction to serve as the company's mainstream product. Then at the very bottom of the stack should be Apple's iPhone 8 and, possibly, iPhone 8 Plus. The iPhone 7 and iPhone 7 Plus are likely to be discontinued.

Interestingly, the aforementioned report from Economic Daily News claims that in March of 2020, Apple will roll out a dramatically upgraded version of the iPhone 8. This phone will apparently come with what will be Apple's best chip, the A13, and even come with a baseline of 128 GB of storage. This device will reportedly start at $649.

Put simply, the device would be to Apple's product lineup at launch what the iPhone SE was when it launched in March of 2016: a device with an older form factor packed with the company's latest chip technology.

Does this make sense?

To be frank, it's a little difficult to understand how such a product would fit into Apple's overall product stack. If Apple sticks to its typical playbook, once it launches new devices this fall, its iPhone lineup should be as follows (product tiers are relative to Apple's own product lines):

  • Entry: iPhone 8 and iPhone 8 Plus
  • Midrange: iPhone XR (discounted)
  • Flagship: Successors to the current iPhone XS, iPhone XS Max, and iPhone XR

Many consumers would arguably find an iPhone 8 with an A13 chip a more desirable phone than any of the entry-level or midrange products, because it would pack the latest processing power. Moreover, at the $649 price point, it would be priced right in line with the current iPhone XR.

So, if we assume this report is accurate, Apple may simply be planning to upend its current segmentation strategy. Imagine for a moment that, following this year's iPhone product launches, the product stack looked like this:

  • Entry: iPhone 8 (iPhone 8 Plus is discontinued)
  • Mid-range: Successor to the iPhone XR
  • Flagship: Successors to the iPhone XS and iPhone XS Max

In this case, an iPhone 8 with the upgraded A13 chip would serve nicely as a product sitting slightly below the successor to today's iPhone XR, while still giving customers reasons to buy products higher up in the stack.

Investor takeaway

Apple has been struggling to protect its market share, particularly in markets like China. So I wouldn't be surprised if the company were looking at more creative ways to introduce attractive products that it could sell for significantly less than it asks for its flagship devices.

An iPhone 8 with an upgraded A13 chip would, for the right price, be quite attractive to many, especially if Apple can get customers to understand and value what its leading chip technology brings to the table. It'll be interesting to see whether this product ultimately makes it to market and, if it does, whether it helps to give Apple's worldwide smartphone market share a boost.

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Ashraf Eassa 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: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.