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Apple’s New Phone May Not Be a Hit in Emerging Markets

The iPhone SE may be Apple's cheapest phone yet but it's unlikely to make a dent in emerging markets (EMs), where currency volatility may push consumers towards lower-priced brands with bigger screens.

The iPhone SE is priced at $399 for the 16 gigabyte (GB) model and $499 for the 64 GB version, but the greenback's recent surge could result in higher prices outside the U.S., hindering Apple's ambitions to breach the low-cost market.

The Brazilian real, Russian ruble, Indian rupee and Chinese yuan have all fallen against the dollar over the past twelve months, and major investment banks, including Goldman Sachs, expect continued dollar strength this year despite reduced expectations for U.S. interest rate hikes.

While official pricing hasn't been released for most EMs, reports already point to higher prices than those mentioned at Monday's launch.

Apple's China website shows the 16GB SE, which will be officially available in the country at the end of March, priced at $505. In Russia and India, the phone is estimated to cost consumers $557 and $590, respectively, based on Monday's exchange rates.

"I remember when the iPhone 6s was launched in India, it was priced almost 50 percent higher than the U.S. price, so I am not leaving that possibility out this time," said Kiranjeet Kaur, Asia-Pacific research manager at market research firm International Data Corporation (IDC).

Apple CEO Tim Cook singled out India as one of the firm's key high growth areas over the next decade in February, but the firm does not yet have an official presence in the South Asian nation.

Apple won't be the only vendor to lose out from a stronger dollar, but analysts say it could suffer the most since its phones remain significantly higher than rivals even when currency effects are excluded.

"The SE's price point is too high for a lot of emerging markets, even at $399," said Bob O'Donnell, founder and chief analyst at Technalysis Research.

Aggressive competition from homegrown players could also complicate Apple's efforts to make inroads in emerging markets.

"The iPhone SE needs to be below $500 to attract consumers in competitive markets, such as India and China," explained Ajay Sunder, vice president of telecoms, Asia-Pacific, at Frost & Sullivan.

Major EM smartphone brands, such as India's Micromax and China's Xiaomi, already have high-end models with a price-tag below $350 as well as larger screens than the iPhone SE's 4-inch display, Sunder noted.

Samsung, ranked as the world's top selling smartphone brand during the last three months of 2015 by Gartner, also has a collection of under-$300 devices, the Galaxy Core and J-Series, with screen sizes exceeding 4 inches.

The big question is whether consumers will choose larger screens or the Apple brand.

"Consumers are increasingly moving away from smaller screens and prefer larger screens now," remarked IDC's Kaur. That's why she believes the iPhone SE will only provide a short term growth spurt, if at all.