Apple Inc’s lower-cost iPhone SE is gaining more traction than expected with users, tempering a sales decline and soothing investors’ concerns about growth.
The $399 handset garnered a healthy dose of criticism when it was unveiled in March. It was still too expensive to be attractive in emerging markets, and had the potential to reduce profitability in developed economies because customers would prefer it to more expensive, higher-margin models, nay-saying analysts said at the time. Yet the SE proved to be a bright spot in the company’s earnings report on Tuesday. Though the company forecast sales would fall for a third consecutive quarter, the $45.5 billion to $47.5 billion range for the current period was better than most analysts estimated. The revenue decline in the three months that ended in June was also smaller than projected, in part thanks to consumers embracing the new phone model. The company’s shares jumped as much as 7.5% in extended trading. “Good things happen when people expect nothing,” said Amit Daryanani, an analyst at RBC Capital Markets who estimates that the SE accounted for 23% of total iPhone sales.
“The numbers aren’t getting any worse and we’re getting into a new iPhone cycle soon.” A new flagship model should improve the company’s financial performance. Apple, which gets more than half its revenue from the iPhone, has felt the impact of a cooling global smartphone market particularly keenly. The shares have lost more than a fifth of their value in the past year amid mounting concerns about the slowdown. Growth in the smartphone industry will slow to 3.1% this year, down from 11% last year and 28% in 2014, according to researcher IDC. Against that backdrop, analysts were surprised by Apple’s positive forecast, which gave them reason for optimism about the company’s flagship product, even before an expected major design overhaul in 2017.
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