Apple Inc. AAPL -2.37% is bringing 5G cellular connectivity to cheaper iPhones, a move some on Wall Street say will continue to fuel record sales this year as concerns linger over demand for the more-expensive versions.
The Cupertino, Calif., tech giant is slated to reveal the third-generation iPhone SE on Tuesday during a virtual event on the company’s website. Apple is also expected to unveil an updated iPad Air with a faster processor as well as 5G, and new computers with faster chips, according to a person familiar with the plans.
The iPhone SE was an early pandemic darling for Apple. Sales of the device approached 25 million, or 12% of the company’s estimated global smartphone shipments, in 2020, according to researcher IDC. Apple doesn’t break out results by iPhone model.
The low-end model, which starts at $399 and comes with the smallest display size of 4.7 inches, fared less well in the past year with the arrival of Apple’s flagship products. Those include the iPhone 12 lineup, which introduced ultrafast 5G to the company’s smartphone offerings for the first time and was given a boost with price breaks from carriers eager to get customers onto the new cellular networks.
Sales of the high-end devices helped propel iPhone sales to a record $192 billion in fiscal 2021 and contributed to the year’s record profit of almost $100 billion. At the same time, shipments of the iPhone SE that lacked 5G fell an estimated 40% in 2021 compared with 2020, according to IDC.
“Obviously, some of the phones that Apple has launched have been really expensive, for the mostly mid- to high-end consumer, so now you get an affordable phone with 5G,” Samik Chatterjee, an analyst for J.P. Morgan, said in an interview.
Mr. Chatterjee raised his earnings estimates for the fiscal year because of expectations for the iPhone lineup, including his faith in the potential of the SE model to appeal to price-conscious buyers looking for 5G. He is forecasting that the SE version could tally 30 million units sold in the first year and help boost overall iPhone shipments to a record of 250 million.
“That’s what will give investors confidence that Apple can continue to grow iPhone revenues,” he said.
The iPhone 12—and the iterative iPhone 13 versions introduced last fall—helped fuel renewed interest among Chinese consumers. The iPhone’s strength was aided by the collapse of Huawei Technologies Co.’s smartphone business amid sanctions by the U.S. government. The sanctions stripped Huawei of the ability to use Alphabet Inc.’s GOOG -4.28% Android operating system. In the final three months of last year, the iPhone retook the top spot as the bestselling smartphone in China. Mr. Chatterjee said the SE model could benefit from the China dynamics and the country’s interest in 5G phones.
Other analysts seem to be warming to Apple’s potential this year as well. As recently as late last year, the average estimate of analysts surveyed by FactSet predicted flat iPhone sales for the current fiscal year, which ends in September, amid worries that the appeal of the iPhone might have peaked during the year after the big upgrade with 5G technology.
In recent weeks, optimism about the company’s outlook has been growing, aided by stronger-than-expected results for the final three months of last year. Analysts now expect iPhone revenue to rise 5% this fiscal year—after soaring 39% in fiscal 2021.
When the first SE model made its debut in 2016, some analysts said the device could help Apple in markets outside of the U.S. where the iPhone—which can cost more than $1,500—is priced out of reach. Instead, the top three markets for the cheaper device last year were the U.S., Japan and Western Europe, according to IDC.
“‘Some of the phones that Apple has launched have been really expensive, for the mostly mid- to high-end consumer, so now you get an affordable phone with 5G.’”
In China, the SE made up less than 10% of shipments, according to Chiew Le Xuan, an analyst at research firm Canalys. He said the phone struggled against budget-oriented Android rivals and expressed skepticism that the new version would do well in China.
“The iPhone SE third generation may seem like a hit in China due to Apple’s increasing market share and 5G penetration,” he said in an email. “However, according to Canalys data, Chinese consumers are inclined towards phones with a larger display.”
In the U.S., the SE has been a gateway to the Apple brand for owners of less-expensive Android phones. Last year, 26% of SE buyers previously had an Android phone, according to Consumer Intelligence Research Partners’ surveys of consumers. “IPhone SE has become a sort of entry-level iPhone, mostly because of its price point,” said Michael Levin, Consumer Intelligence Research co-founder.
Apple again might benefit from carriers eager to push its latest phones on customers, according to Cliff Maldonado, principal analyst for BayStreet Research, which tracks marketing efforts by the wireless-service providers.
The carriers are eager to move customers from 4G to the new faster networks because it is cheaper for them to deliver the same amount of data. Mr. Maldonado forecasts that carriers will reach about 95% of 5G subscribers in mid-2024. 5G has been aimed at improving connections for games and videos.
“The carriers will be happy to push the SE3 over the previous SE2 at roughly the same $400 price point because the SE3 will allow the carrier to support the phone less expensively on 5G than 4G LTE,” he said.
Write to Tim Higgins at Tim.Higgins@WSJ.com
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