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Will iPhone SE be a threat to Chinese smartphone manufacturers?

Apple’s new product release last night was a disappointment to many.

Their latest smartphone, iPhone SE, highly resembles the earlier iPhone 5S. Even Apple confessed that the new smartphone takes “an incredibly popular design and refines it even further”.

However, while many analysts described the new model as “no surprises”, the low price may be a surprise to Chinese smartphone manufacturers, in a scary way. Starting at USD 399, the new model is so far the “most affordable” iPhone since its first release in 2007.

Price-down under sales pressure?

Apple’s new pricing strategy, to many, may be an attempt to counter the pressure of a slowdown in growth worldwide. According to Apple’s latest financial release, only 74.8 million iPhones were sold in its last fiscal quarter, registering a YoY increase of 0.4%. It is the lowest growth rate since the first iPhone was launched in 2007.

The slowing down of Apple’s growth can be attributed to a declining Chinese market. China has become Apple’s biggest market since April 2015. However, as a smartphone market, its potential is draining.

Global market research agency IDC predicted that China’s smartphone market would only grow at one to two percent in 2016. “In theory it could slip below zero this year, but either way, it’s relatively flat,” Bryan Ma, Vice President of Client Devices research at IDC told Reuters in January.

For years, Chinese smartphone makers have been seizing market shares from Apple and Samsung with their low-price and low profit margin strategy. This time, as Apple adopts a pricing-down strategy, will they be able to overcome this price war?

A cheaper iPhone and its pricing-up Chinese counterparts

The truth is, while Apple is lowering its prices, local Chinese phone makers are attempting to upgrade to a high-end market which was largely dominated by Apple before.

Huawei launched its flagship phone Mate 8 last November with a high price up to RMB 6888 (USD 1045). According to Yu Chengdong, Huawei’s president of consumer products, the first-month sales of Mate 8 surpassed one million units.

Though the number was questioned widely by media, the ambitious price indicates Huawei’s intention to tap the high-end market, and the strategy seems to be working so far. According to market research agency Kantar Worldpanel, Huawei is closing the gap with Apple, capturing 24.3% of the sales.

Another Chinese smartphone maker, Xiaomi, after its failure to reach its 2015 sales expectation, is now switching its priority back to its smartphone product line as well, also with a pricing-up strategy.

“We hesitated when pricing the Mi 5 at RMB 2,699, but it was well accepted by customers,” Xiaomi’s president Lin Bin said recently on the opening of its offline store expansion. “The pricing-up of smartphones is now a trend and a must.”

iPhone SE’s price for the 64G model in the Chinese market is RMB 4,088, way above Mi 5’s RMB 2,699 but only slightly higher than Mate 8’s RMB 3,699 of the same storage size. Now it’s a head-on competition between the forerunners in the Chinese market.

For consumers, will a cheaper and smaller iPhone be tempting?

With a lower price range, will Chinese consumers switch from the Android camp to Apple now? And as people are used to big screens now, will a smaller screen be attractive to Chinese consumers?

According to a survey by Tencent News, China’s biggest news portal, 24% of 7,430 interviewees chose a screen size under 4 inches to be their favorite; however, consumers’ expectations on the price is also relatively low. Over 60% of the interviewees reported that they would purchase an iPhone SE when its price is under RMB 3,000. Even the basic 16G model at RMB 3,288 is still above the expectation line.

iPhone 6s, iPhone 6s Plus and iPhone 6 were the most popular models in urban China in the past year, according to Kantar’s report in January. But will it be able to keep its momentum with a cheaper, smaller but less innovative new model in this market that is close to saturation? It may remain a question to many as China is indeed a price-sensitive market.

One thing beyond any doubt is that whatever the sales performance, iPhone SE isn’t the product that Apple enthusiasts have been long waiting for. We hope in September Apple will be able to present something that’s really “new” rather than a “new” pricing strategy or a “new” campus.

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