By Mari Saito and Himank Sharma
CUPERTINO, Calif/MUMBAI (Reuters) - Apple Inc (O:AAPL) is betting a new 4-inch iPhone will spur smartphone users in key markets such as China and India to ditch their larger-screens in favor of the diminutive, yet feature-rich and lower-priced iPhone SE.
The plan, if successful, will pose a challenge to its Asian competitors such as Huawei Technologies [HWT.UL] and Xiaomi (XTC.UL) which have been churning out big-screen phones to win market share in the crowded mid-range and near-premium segments.
"With the iPhone SE, Apple is choosing to aim at an under-served segment of consumers that prefer small screen smartphones and have been reluctant to upgrade," research firm IHS said in a note.
"Importantly, Apple's competitors have chosen not to target the premium compact smartphone market."
Users will be more willing to ditch their larger screens if Apple's smaller phone can match-up in features, analysts said.
"This will appeal to more people who otherwise couldn’t afford their flagship phone. This will make the market more competitive at that price point as Apple is preparing to take more share,” said Anshul Gupta, research director at Gartner.
The pricing, along with the features, is for the first time likely to pit Apple directly against phones made by companies such as Oppo, One Plus and Xiaomi, analysts said.
"Apple iPhone SE will target feature phone upgraders, first-time smartphone buyers and prepaid consumers in Asia who cannot afford, or are not familiar with, bigger-screen smartphones," said Neil Mawston, an analyst at Strategy Analytics.
At the product launch in Cupertino, California on Monday, Apple vice president of iPhone Product Marketing Greg Joswiak singled out China as a target market, saying four-inch displays like that on the iPhone SE were still popular with first-time smartphone buyers.
Chinese buyers tend to start off with a phone with a 4-inch screen, just like the iPhone SE, he argued.
China, Apple's second-biggest market, and India, one of the fastest-growing major markets in the world, are both seen as key for Apple, which expects overall iPhone sales to contract.
SECOND TRY BY APPLE
In China, some analysts says the iPhone SE may have better prospects than the iPhone 5C, which was launched as an affordable gadget three years ago but was less technologically advanced than the top phone at the time.
"The Chinese market is not bringing as much growth as previously and is becoming more competitive than ever," said Ronan de Renesse, an analyst at research firm Ovum.
"Apple must decrease the entry price of new iPhones to sustain growth in China. The iPhone SE offers very high specifications for a low price, which is essential to appeal to Chinese consumers," said the analyst.
The iPhone SE, which will come with its latest processor, fingerprint scanner, Apple Pay and a powerful camera, is also meant to undo Apple's missteps with the iPhone 5c, which was launched as an affordable gadget three years ago but failed to sell in significant numbers.
Apple's second attempt to enter the mid-tier smartphone market, crowded with Android devices of rivals such as Samsung Electronics (KS:005930) and Huawei, is seen as an improvement on the 5C strategy.
"The 5C was awful, no one wanted it. Everyone knew that if you bought it you had no money," said Shanghai-based Shaun Rein, founder of China Market Research Group.
"Just going cheap doesn't mean it'll do well."