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Apple’s New Gear: Predicting Failure

There must be a special place for people who write misleading, or completely wrong, fear-mongering pieces about Apple. Surely there are lots of real things about which to complain, but evidently they aren’t doing their research. It’s too easy to repeat old tropes. Very easy.

So almost every time Apple releases something new, shoes will drop worldwide. Maybe old shoes, with beaten leather and holes in the soles, but dropped shoes nonetheless. So it was inevitable that some would complain that the iPhone SE is just too expensive, that it has no possible chance to succeed.

Now for a smartphone, an unlocked price of $399 for the basic 16GB version may seem pricey. It is if you compare it to some of those cheap Android phones. But other companies envy Apple for being able to command a high-end price, and for the profits earned. Even a Samsung Galaxy handset competes in that price category, but doesn’t match Apple, although Samsung sells more units when you include cheaper, less profitable gear.

But prices are already being slashed on Samsung’s Galaxy S7, their newly-launched flagship smartphone. I saw an ad this week in which AT&T will get you a second handset free if you add a new line on your account. That’s hardly an expression of confidence that these products will be selling real fast without lots of help. Indeed, Samsung has not been able to move their top-of-the-line gear as fast as Apple, nor do profits come even close.

Those troubling facts, however, do not stop some alleged reporters from assuming that Apple will ultimately lose out to commodity gear, just as they lost out to commodity gear in the PC business.

But Apple’s market share in the PC space has actually been rising in recent years. Even when sales drop slightly, Apple does better then most of the rest of the industry. By concentrating on the middle or higher-end of the market, profits are higher than other PC makers.

Still, that the revenue from Mac sales was a mere 8.9% of apple’s total sales in the December 2015 quarter, which is regarded as “insignificant” until you consider the total numbers, in the billions of dollars. These are sales any PC company would envy. Most competitors don’t even come close, and it consists of loyal customers who opted to buy a product with its own proprietary operating system. The rest of the PC makers are selling Windows gear, and that gear is usually little different from another company’s product, so customers can easily switch brands depending on who gives them the best deal. So much for customer loyalty.

The latest argument about impending failure is about smartphones. iPhone sales growth has slowed, and there will evidently be negative growth this quarter. It’s doubtful the iPhone SE will have much impact, since it will only ship on March 31st. But it should have an impact in future quarters.

Regardless, the argument has it that, since there are so many commodity smartphones, in other words fairly similar models with little significant differentiation, and they are relatively cheap, Apple must suffer. It must be similar to the PC wars, except that Macs never held a majority share of PCs, not even in the early days. Besides, the commodity PCs were here more than two decades ago, and Macs are still around doing better than ever. It didn’t kill Apple — though it did come close when Apple stopped being smart about innovation in the mid-1990s.

With the iPhone, there is no direct equivalent. Nobody else produces a product running iOS, so it’s not so easy for customers to buy something cheaper without making some hard decisions, and being willing to attempt to migrate their stuff to a new platform. An iOS switcher who goes Android would also have to accept the possibility that the apps they use are not available, and would have to seek out substitutes, if one is available.

Besides, the average selling price of iPhones has remained pretty stable, so it’s not as if people are looking for cheaper products, or going elsewhere in large quantities. Indeed, more Android users go iOS than the reverse.

That said, the iPhone SE is the cheapest smartphone ever built by Apple. Monthly lease or purchase deals will start at $17, according to Apple, so it’ll be easier than ever for customers to buy one. What’s more, it offers most of the capabilities of the iPhone 6s family. The only significant missing feature is 3D Touch, which is probably not such a big deal. So customers who want a smaller iPhone — or just need to save money — aren’t being shortchanged.

That the smartphone market is becoming saturated effects everyone, not just Apple. It doesn’t mean customers will magically move to cheaper handsets and give up their iPhones. Or not buy one in the first place.

Fleshing out the product lineup might make it seem a tad confusing for customers, but Apple is really just replacing the iPhone 5s with a new model. So nothing is being lost, and customers are also saving $50 on a better product.

Now this may also mean that the next iPhone flagships, the supposed iPhone 7 series, might also be a tad cheaper going forward. But it’s not that Apple’s profit margins are so tight that they can’t absorb somewhat lower purchase prices. If they strike better deals for components, it may not make any difference.