Apple's lower-cost iPhone 5c, at $550 unsubsidized, is more expensive than anticipated
Apple (NASDAQ:AAPL) did indeed deliver a lower-cost iPhone, the iPhone 5c, alongside a more expensive model, the iPhone 5s. However, the ultimate cost of the iPhone 5c is a bit more expensive than analysts had expected.
Apple will sell the 16 GB iPhone 5c for $99 and the 32 GB version for $199 when coupled with a two-year contract. On a no-contract basis, however, the phone will cost $549 for the 16 GB model and $649 for the 32 GB model.
Those prices are only $100 lower than the higher-end iPhone 5s, which will sell for $199 for the 16 GB model, $299 for the 32 GB model and $399 for the 64 GB model, all with a two-year contract. On an unsubsidized basis, the iPhone 5s will sell for $649 for the 16 GB model, $749 for the 32 GB model and $849 for the 64 GB model.
As AllThingsD notes, financial analysts had expected Apple to price the iPhone 5c somewhere between $400 and $500. The fact that it is priced higher than that means Apple won't dramatically expand its addressable market to those customers who couldn't previously afford its newer iPhone models. "This is clearly a margin play" for Apple, said Recon Analytics analyst (and FierceWireless contributor) Roger Entner.
"Nobody expected it to be this high," Wedge Partners analyst Brian Blair told Bloomberg. "They are clearly saying we aren't willing to go downstream."
Forrester Research analyst Charles Golvin said that "Apple is continuing to position their products as premium products, premium experiences," and the company still believes there is "a significant portion of the market out there willing to spend for that premium."
Golvin said that the colored casings on the iPhone 5c will help consumers who buy that phone stand out and be able to claim they got a new iPhone model, rather than an older, discounted model--even though the 5c has many of the same specifications of the iPhone 5.
Some analysts were optimistic about the iPhone 5c's prospects in getting Apple more penetration in emerging markets. "We believe that the price point should attract emerging market consumers and can pave the way for Apple's international penetration," Wells Fargo Securities analyst Maynard Um wrote in a research note. "The 5c should have gross margin greater than the original 5 yet still have some of the commonalities to the 5s to provide economies of scale."
Others were more pessimistic and said Apple had missed a chance with its pricing. "The pricing on the iPhone 5c is simply not low enough to adequately address the significant global growth opportunity that we believe exists with unsubsidized prepaid customers that have not yet bought a smartphone," BTIG analyst Walter Piecyk wrote in a blog post. "To be clear, Apple never indicated that it was their intention to attack this market with the iPhone 5c and the global opportunity is still in its early stages. However, we believe Apple is foregoing a valuable and relatively easy way to return to earnings growth. The real question is whether Apple plans to ever go after these markets or rather just remain a high-end phone maker."
Piecyk wrote that the 5c launch "could be a critical miscue as emerging market operators have turned the corner on smartphone acceptance and are looking to drive more data usage on their 3G and in some cases 4G networks. While Apple could jump into the lower priced smartphone game next year with still plenty of growth opportunity, it will be increasingly difficult to differentiate on hardware and more desirable to establish market share early in order to establish a market ecosystem."
In its announcement, Apple departed somewhat from its previous practice of discounting older models when introducing a new model. This year, the company released the iPhone 5s and iPhone 5c and will discontinue last year's iPhone 5. Last year, Apple released the iPhone 5 and continued to sell the previous years' iPhone 4S and iPhone 4 at a discounted price.
The iPhone 5c is a "like-for-like substitute for the [iPhone] 5 from a price point" perspective, Entner explained.
Interestingly, though, Apple said it will continue to offer an 8 GB iPhone 4S. The phone will be free with a two-year service contract or $450 unsubsidized. Thus, the iPhone 4S will essentially represent Apple's product for the low-cost market.
If Apple does wind up striking a long-rumored deal with China Mobile, which has 740 million total customers, Golvin said Apple will be targeting China Mobile subscribers who can afford to pay a premium, and not the carrier's entire subscriber base.
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