Apple to unveil smaller, cheaper iPhone on Monday

The new device is meant to woo those still clinging to the more than two-year-old 5S or 5C, the last models with the more compact screen.

Tim Cook could take to the stage tomorrow and speak about the company’s legal fight with the US government over an order that it help the FBI unlock a terrorist’s iPhone. Robert Galbraith / Reuters

Since Apple introduced the first iPhone in 2007, mobile handsets have only got bigger. But chief executive Tim Cook will buck that trend on Monday when he presents a smaller ­iPhone, seeking to entice holdouts to upgrade to a new smartphone, even if they don’t want a larger device.

Unlike previous new iterations of the device, the 4-inch iPhone won’t be packed full of technological innovations intended to send hordes of Apple fans queuing around the block on launch day. Instead, it is meant to woo those still clinging to the more than two-year-old 5S or 5C, the last models with the more compact screen.

“It will really just replace the 5S at the low end of the line-up,” said Chris Caso, a New York-based analyst with Susquehanna International Group, with a positive rating on Apple shares.

The company is rolling out the new phone two months after saying quarterly sales were ­likely to decline for the first time in more than a decade, highlighting concern that iPhone growth had reached its limits.

While analysts from UBS Group to RBC Capital Markets predict that shipments of the iPhone SE – the expected name of the new model – will be about 15 million annually, its smal­ler size and lower price could encourage existing customers to step up at a time of the year when sales often decelerate. Apple sold more than 231 million iPhones in 2015, with sales dipping between April and September, as has been the case in previous years.

Apple followers might pay more attention to anything Mr Cook says about the company’s legal fight with the US government over an order that it help the FBI unlock a terrorist’s ­iPhone.

The two sides will present their cases on Tuesday before a magistrate judge in Riverside, California. Mr Cook might use the stage tomorrow to reiterate Apple’s argument that creating software to degrade the phone’s security features would inevit­ably endanger the privacy of hundreds of millions of users.

The company is introducing the new and smaller iPhone at a time when customers are holding on to their handsets longer. Service providers such as AT&T and Verizon Wireless are no longer subsidising new iPhone purchases as they once did, making customers question whether the improvements warrant the expenditure on new models.

“The replacement cycle for iPhones has stretched to 27 months,” compared with 23 months two years ago, the RBC analyst Amit Daryanani wrote in a note to clients last week. The new handset will “ensure that consumers who have a three-year-old 5S or 5C don’t switch to Android for lack of new iPhone products”.

Owners of older iPhones looking to upgrade can currently either spend US$549 on the ­basic version of the iPhone 6 – the 2014 edition – or buy a less-expensive Android-based phone. Apple’s new lower-end model might persuade customers to stick with the company’s products, allowing it to sell services through the App Store or subscription-based products such as Apple Music and iCloud.

Mr Cook will wield a new iPad at tomorrow’s event as well, details about which are scant. The tablet has endured its own revenue drop – unit sales fell by a quarter in the three months through December – as users have been happy to retain older models as their phones perform more of the same functions.

Releasing the new 4-inch ­iPhone also provides an opportunity for Apple to try out new component suppliers ahead of the next generation of the larger, flagship phone, according to Tim Arcuri, a San Francisco-based analyst with Cowen & Co who rates Apple’s market performance.

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