Apple (NASDAQ:AAPL) has told the two companies that assemble its iPhones to cut orders for its lower-priced iPhone 5c, according to multiple reports, which could signal weaker-than-expected demand for the device compared to the more expensive iPhone 5s.
Apple has reportedly cut orders for the iPhone 5c.
The reports, from both the Wall Street Journal and Reuters, citing unnamed sources, said Apple told Pegatron to reduce iPhone 5c orders by less than 20 percent. Analysts have estimated that Pegatron assembles two-thirds of the iPhone 5c line. Additionally, the Journal reported that Apple told Hon Hai Precision Co., better known as Foxconn, which assembles the remaining 5c line, that 5c orders would be cut by a third.
Pegatron and Hon Hai declined to comment, according to Reuters. An Apple spokeswoman declined to comment.
Apple said it sold a record 9 million units of the iPhone 5s and lower-priced iPhone 5c during the new models' debut weekend. Apple did not provide a breakdown of sales between the two new models.
Apple is selling 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 costs $549 for the 16 GB model and $649 for the 32 GB model. Many analysts had expected the iPhone 5c to retail for $400 to $500 on an unsubsidized basis, and were shocked that the ultimate price was not lower.
"We never had an objective to sell a low-cost phone," Apple CEO Tim Cook told Bloomberg Businessweek last month in explaining the company's strategy. "Our primary objective is to sell a great phone and provide a great experience, and we figured out a way to do it at a lower cost."
The iPhone 5c price is only $100 lower than that of the higher-end iPhone 5s, which retails 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 sells for $649 for the 16 GB model, $749 for the 32 GB model and $849 for the 64 GB model.
One of the most notable new features on the iPhone 5s is a fingerprint scanner built into the new phone's home button to unlock the phone and make iTunes purchases. The iPhone 5s runs on Apple's new A7 processor, a 64-bit chipset. Apple said the chip will allow the phone to run more quickly, giving it the computing power of low-end desktop computers. Meanwhile, the 5c is made of a hard-coated polycarbonate material, with casings in green, white, blue, pink and yellow. The innards are similar to last year's iPhone 5. Apple has said the battery on the iPhone 5c is slightly larger than the one on the previous iPhone 5.
Some analysts said that the order cut demonstrates that the 5c is overpriced and not differentiated enough. During the launch period, demand appeared higher for the 5s, particular the gold model. "This reflects a failure in Apple's pricing strategy," Bevan Yeh, a Taipei-based senior fund manager at Prudential Financial Securities Investment Trust, told Reuters. "The price differentiation between 5C and 5S is too small. It's an iPhone 5 with plastic casing and isn't worth the price."
A recent Robert W. Baird channel check of U.S Apple Stores indicated there was strong demand for the 5c. Baird analyst Will Power and his fellow analysts looked at the availability of 600 different iPhone 5c SKUs last week, and found many in stock at nearly all the stores they checked, according to AllThingsD. "Different stores have been running out of stock of a variety of SKUs, rather than just one or two stores always running out of stock of the same SKU," Power explained. "This implies that while the iPhone 5c is easily found, its inventory is not sitting stagnant."
However, according to Apple's online stores in the U.S. and China, the company is able to ship the iPhone 5c to customers within 24 hours, but the iPhone 5s is only available to ship in two to three weeks.
Plentiful supply of the iPhone 5c in stores could indicate that Apple's supply chain management is as strong as ever, and that Apple is simply producing models to keep up with demand. The manufacturing process for the 5c is likely easier, since it uses many components found in the iPhone 5.
Apple will announce its fiscal fourth quarter results on Oct. 28.
- see this WSJ article (sub. req.)
- see this Reuters article
- see this separate WSJ article (sub. req.)
- see this AllThingsD article
- see this Daring Fireball post
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