Apple's modest product upgrades take backseat to worries on iPhone encryption

Apple CEO Tim Cook, center, with two employees, shows off the smaller 9.7-inch iPad Pro at Monday’s product launch.
Apple CEO Tim Cook, center, with two employees, shows off the smaller 9.7-inch iPad Pro at Monday’s product launch.
Published March 22, 2016

CUPERTINO, Calif. — As Apple unveiled modest upgrades to its device lineup Monday, CEO Tim Cook knew that many Apple users were more interested in the company's continuing fight with the federal government over the encryption on their iPhones.

Cook directly addressed that battle — which was headed to a court hearing today before the Justice Department sought a delay — right up front in a news conference at the company's Cupertino, Calif., headquarters.

He said Apple believed it had a responsibility to help protect its users' data and was fighting the Justice Department's demand to help the government crack the encryption on an iPhone used by one of the terrorists in last year's attack in San Bernardino, Calif.

"We need to decide as a nation how much power the government should have over our data and over our privacy," Cook said. "This is an issue that impacts all of us, and we will not shrink from this responsibility."

Compared to that high-stakes contest, Apple's new products were small ball.

The company introduced smaller versions of its flagship iPhone and iPad devices, hoping to eke out more sales growth by filling in gaps in its product lineup.

The new devices, the iPhone SE and a 9.7-inch iPad Pro, represent a return to the more modest form factors that prevailed before Apple supersized its smartphones in 2014 and added the large business-oriented iPad Pro last year.

"It's clear that there is still some subset of the iPhone population that prefers a smaller phone," said Jan Dawson, chief analyst of Jackdaw Research, an independent consulting firm.

Greg Joswiak, an Apple executive, said on stage that the company sold more than 30 million 4-inch iPhones last year.

So Apple upgraded the components of its new 4-inch phone to largely match the speed and features of its flagship iPhone 6S, but at a lower price, starting at $399.

Apple, which has a higher market value than any other company, is now so big that it is difficult for the company to come up with new products to drive a new wave of purchases. Its premium pricing — its larger phones typically run $650 or more — has also left it vulnerable to cheaper handsets that run on Google's Android software.

The iPhone SE packs a faster computer chip, a better camera and Apple Pay payment technology into the same 4-inch case as the aging iPhone 5S.

The new 9.7-inch iPad Pro brings some of the features of last year's 12.9-inch iPad Pro, including a stylus, a keyboard and four speakers, to a tablet the size of the consumer-oriented 9.7-inch iPad Air 2. The new Pro will start at $599, and Apple also cut the price of the Air 2 by $100.

The company also reduced the price of the Apple Watch by $100, to $299, and introduced woven nylon wristbands for the device. Analysts say sales have been modest for the watch, which works as a companion for iPhones, and the price cut might encourage more people to give it a try.