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Apple's small iPhone strategy aims to reclaim stuck customers

Apple's small iPhone strategy aims to reclaim stuck customers

Will expand portfolio with new 4-in. iPhone to boost sales during traditionally slow stretch

Apple later today will take a step back in time and unveil a smaller iPhone in an effort to boost sales by expanding its portfolio, according to several analysts.

The new iPhone expected to be introduced by CEO Tim Cook and other executives will likely be a smaller device with a 4-in. display, a size Apple discarded in September 2014 when it rolled out the larger 4.7-in. iPhone 6 and the even bigger, 5.5-in. iPhone 6 Plus.

Although Apple continues to sell a 4-in. smartphone -- 2013's iPhone 5S -- it will introduce a new model in that size to reclaim a segment it abandoned when it went all in on larger screen devices.

"There are people out there who just want smaller devices," said Carolina Milanesi, chief of research for Kantar WorldPanel Comtech.

And that group may be enormous.

In January, Cook told Wall Street that more than half of those who had an iPhone prior to 2014's go-bigger 6 and 6 Plus had not yet upgraded to one of the larger models. Although Cook cited that as an opportunity for getting customers onto the flagship iPhone 6S and 6S Plus, it may have also exposed a weakness in the company's habit of selling a minimalist line.

By leaving the handier 4-in. screen size behind -- and thus smaller overall devices -- Apple may have written off some of its customers.

"There are people who do not want a bigger phone, who prefer a smaller size that they can carry more easily," agreed Bob O'Donnell, chief analyst at Technalysis Research. "It may never be a huge part of the line, but it certainly could be 5% to 10%."

With that in mind, Apple has decided to return to the 4-in. format -- the size used by the iPhone 5 line of 2012 and the 5S of 2013 -- in a bid for customers who have no truck with something that they perceive as too large.

"While larger phones have larger displays, smaller phones are easier to place in a pocket, purse and even interact with," said Patrick Moorhead, principal analyst at Moor Insights & Strategy.

Older iPhones, including recycled devices at significantly lower price points, have served the needs of those who want small. But it's in Apple interest to introduce a new model.

iphone sizes

The progression of iPhone screen sizes, from left to right: iPhone 4s, iPhone 5s, iPhone 6 in Zoomed view, and iPhone 6 in Standard view.

"With everything else they're doing," said Milanesi, "they can't afford to have people using older devices. They need to get them to move on." She cited services -- a part of its business that Apple has increasingly touted -- as the most important Apple motivation for pushing small in a new package that is, if not the technological equal of the flagship, comes with more power and feature support than the iPhone 5.

The iPhone 5, for instance, lacked a Touch ID fingerprint scanner, and so is ineligible for Apple Pay.

Apple's timing was also an object of discussion by the analysts.

If Apple does trot out a smaller iPhone today -- most rumors have pegged its moniker as "5SE," a nod in nomenclature to 1987's Macintosh SE -- it will be departing from its usual summer or fall new iPhone launch windows. Since 2012 and the iPhone 5, Apple has kicked off that year's models in September; prior to that it was October (2011), July (2008) or June (2007 and 2010).

So why now?

Apple's Q2 and Q3 sales "are typically off by about a third from sales in Q4 and about 25% from sales in Q1, so boosting sales in this quarter would help even out the seasonal variability," said Jan Dawson, principal analyst at Jackdaw Research, in analysis published March 10 on Tech.pinions.

By adding a new iPhone to the lineup card now, Dawson argued, Apple creates an opportunity to boost sales during its traditionally slow stretches, when the initial shine has worn off the latest models.

"The off-cycle is becoming more and more critical to them. Apple wants to spread sales throughout the year," agreed Milanesi, pointing to the sales bulge in a new iPhone's first six months.

A March debut also avoids the mistake made with the iPhone 5C, the plastic-cased smartphone that launched in September 2013 alongside the iPhone 5S. The 5C was almost a marketing afterthought, with any buzz for it swamped by the hype over that year's new flagship. Apple learned from that, and so gave this new, smaller device its own time in the limelight.

If Apple debuted the iPhone 5SE in September, as has been its practice, "it would get buried in the noise" by the next flagship, the iPhone 7, said O'Donnell.

"I suspect the reason [why Apple is launching a new iPhone now] is the 5C sold well during just this time of year, when sales of the flagships were down," said Dawson, asserting that the iPhone 5SE fills that role this year. "If that's part of the intent, then why not launch it into this window, when it can gain the most attention and feel new and different, rather than getting overshadowed by brand-new top-of-the-line phones?"

Apple will live-stream its presentation today starting at 10 a.m. PT (1 p.m. ET), from its website. Users can view the event from an iPhone, iPad, or iPod Touch; a Mac running OS X 10.8.5 or later; a Windows 10 PC with Microsoft Edge; or a second-, third- or fourth-generation Apple TV.

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