Apple might reduce iPhone SE price to bolster demand and potentially undercut the Pixel 4a

Apple might reduce iPhone SE price to bolster demand and potentially undercut the Pixel 4a
Apple might cut margins on the already affordable iPhone SE to boost sales and move some iPhone production outside of China, according to a new AppleInsider report. 

The iPhone SE starts at $399 and Apple appears confident that it could win over some Android users with the device. Per investment bank Piper Sandler's analyst Harsh Kumar, Apple is willing to forgo some of its margins on the phone to drive up sales. The iPhone SE apparently has a 54 percent component cost margin, much greater than the company's average product gross margin of 30.4 percent.

In the long run, Apple stands to gain from a cut in iPhone SE margin as it could get more people to use its services, which apparently have a  gross margin of 65.3 percent. 

Previously, it was reported that the Google Pixel 4a will start at  $349 for the 128GB model, so it could be that Apple is trying to stay competitive by reducing iPhone SE price.

Apple rightfully doesn't want to be caught in the middle of the US-China trade war

The report also says that Apple is looking to diversify manufacturing to locations outside of China. The US recently extended its ban against Chinese company Huawei for another year. It also wants to restrict the company's ability to produce chips and obtain critical parts that are based on US-origin technologies. 

This could further escalate tensions between the two countries and China might retaliate against US businesses to get back at the Trump administration. Most of Apple's contract factories are in China and it couldn't risk a disruption because of the rift between the two countries. 

One location of interest for Apple is India. The report says Apple executives are in touch with Indian officials regarding moving production capacity worth $40 billion over the next five years. Production will likely be done by current partners Wistron and Foxconn. At the same time, the company supposedly wants to reduce its reliance on the Taiwanese manufacturer Foxconn. This is typical of Apple, as diversifying the supply chain helps it to minimize disruptions and negotiate better prices.

On the demand side, China made up 14.8 percent of Apple's revenue in Q1 2020. Needless to say, China is an important market, and the smartphone market there is already showing post-pandemic signs of recovery.

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