Apple Inc. iPhone SE Is Finally Catching On

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Apple Inc.’s iPhone SE, its lower cost phone, has been able to gain more footing than anticipated, thus helping temper the sales decline and alleviating worries about growth. In March when the $399 handset was revealed, it earned a fair share of criticism.

Apple iPhone SE was a bright spot

Despite being called a lower-cost iPhone, it was still too costly to lure in consumers in developing markets, and the handset likely had the potential to trim down profitability in developed economies as consumers would prefer it over more costly and higher-end models.

Whatever critics were counting on, the SE handset ended up being a bright area in Apple Inc. (NASDAQ:AAPL)’s earnings report on Tuesday. Despite the fact that the company projected sales to fall for a third consecutive quarter, the $45.5 billion to $47.5 billion guidance range for the present quarter was better than what most analysts expected.

Chief Financial Officer Luca Maestri said demand for products was stronger than what they estimated at the start of the quarter.

“We were not able to fulfill iPhone SE demand throughout the quarter. We have now been able to put in enough capacity to provide sufficient supply for the next quarter,” Maestri said.

Amit Daryanani, an analyst at RBC Capital Markets, notes, “Good things happen when people expect nothing.”

The analyst 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,” the analyst noted.

iPhone 7 to compensate for profit margins

For the three months ending in June, the revenue decline was less than anticipated, thanks partly to buyers grasping the new phone model. Pushing revenues with cheaper phones comes at the expense of lower profitability. However, this risk will likely fade when the company uncovers its next-gen iPhone, tentatively dubbed the iPhone 7.

It usually has been that every iPhone upgrade has pushed revenue growth and profit margins to around 40%. A new flagship model should improve Apple’s financial performance soon, Daryanani said.

The Cupertino, California-based company, which gets a major portion of its revenue from iPhone sales, also experienced the impact of the cooling global smartphone market. According to researcher IDC, smartphone industry growth will ease to 3.1% this year, down from 11% a year ago and 28% in 2014. Amid such a backdrop, analysts were amazed by Apple’s positive forecast, which gave them reason for buoyancy on Apple’s flagship product.

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