Apple, in a first, goes cheaper with new iPhone

First look at Apple's new iPhone and iPad
First look at Apple's new iPhone and iPad   

Apple's boldest move on Monday wasn't any of the products it showed off — it was its pricing.

One of the new products unveiled — the 4-inch iPhone SE — has the lowest starting price of any of its new phones: $399.

Several analysts said a cheaper iPhone could encourage demand in emerging markets against less-expensive rivals from Samsung and Xiaomi.

In addition to the new iPhone, the Cupertino, Calif., company also unveiled a new 9.7-inch iPad Pro starting at $599, and a cheaper price for the Apple Watch, $299

"We believe the price makes iPhone slightly more accessible to consumers in emerging markets," Piper Jaffray analyst Gene Munster said.

Apple CEO Tim Cook speaks during an Apple special event at the Apple headquarters on March 21, 2016 in Cupertino, California.
Justin Sullivan | Getty Images)
Apple CEO Tim Cook speaks during an Apple special event at the Apple headquarters on March 21, 2016 in Cupertino, California.

S&P Capital IQ analyst Angelo Zino agreed. "We think Apple's aggressive price point for the iPhone SE will help it better penetrate emerging markets and should support higher Android switcher rates," he said.

"I have always thought that the lower you can get an iPhone, the better the demand dynamics would be," said RBC Capital Markets analyst Amit Daryanani. "My gut is it is pretty attractive. The flip side for Apple would be what happens to your gross margins if the phone is this cheap."

Daryanani said he thinks the low price will ultimately be good for revenue. The new iPhone opens up an opportunity for Apple to boost sales between June and September, when there is typically a lull as people await the next generation handset, he said.

The iPhone SE has much of the same hardware and features as the iPhone 6S, minus 3D Touch, which likely helps keep the price down, Daryanani said.

Success isn't guaranteed, and some think the new still iPhone is too expensive for emerging markets.

"I think $399 seems not very attractive compared with [a] $499 iPhone 6 to the middle-end clients," said Rosenblatt Securities' Jun Zhang. "There are many good choice middle-end Android smartphone[s] around the $399 price range."

"This will reach partway down the income bracket but it's not going to crack open the emerging market. But I do not think that is their goal with this phone," Forrester Research analyst Frank Gillett said.

"The most important thing is they have demonstrated they are going to keep an iPhone this size in their lineup and keep it modernized," he said.

Apple is also offering a 64GB version of the iPhone SE for $499, and will begin taking orders March 24. The device will be available starting March 31.

The new iPhone SE is displayed during an Apple special event at the Apple headquarters on March 21, 2016 in Cupertino, California.
Justin Sullivan | Getty Images
The new iPhone SE is displayed during an Apple special event at the Apple headquarters on March 21, 2016 in Cupertino, California.

The other surprise from the event was Apple's decision to lower the cost of the Apple Watch, Daryanani said.

Munster noted that many retailers, including Best Buy and Target had already cut the price of the Watch, in some cases by $100.

"Thus, while the small price cut may be a slight positive for units over the next few quarters, we believe that many buyers were already able to receive discounted prices," Munster said. "Bigger picture, we believe that a price cut today with no new device suggests that a new Watch in September is more likely with the price cut to clear inventory ahead of the new device."

"Overall, we view the March announcements as incremental and expect the bigger announcements, particularly the redesigned iPhone 7, will come in the September event," he said.