“Apple just can’t seem to keep Wall Street happy,” Cadie Thompson reports for CNBC. “The tech giant’s stock was down by about 5 percent on Wednesday afternoon after disappointing the street in two big ways this week. First, Apple didn’t meet pricing expectations with its iPhone 5C and second, the company failed to announce a deal with China Mobile.”
“Investors and analysts anticipated the iPhone 5C would price in the midtier market at about $350 unsubsidized. However, the smartphone costs over $500 without a contract and about $100 with a two-year contract, a price that is still too high for Apple to sell the device in emerging markets, industry experts said. In China, for example, an unsubsidized iPhone 5C will cost 4,488 renminbi, the equivalent to $733.,” Thompson reports. “‘Just how far behind is Apple trying to fall? I do not get Tuesday’s release and product launches. Something is just wrong,’ Doug Kass of Seabreeze Partners Management said in a note Wednesday… Customers in emerging markets are price-sensitive and want a lower-priced phone, but the iPhone 5C—or “iPhone dud,” as Kass describes it—won’t be cheap enough to drive market share gains that could lead to earnings growth.”
Thompson reports, “Kass said that Apple is making a mistake when it comes to trying to maintain high margins because growing market share is actually more valuable. ‘I fully recognize that Apple must somehow walk a tightrope between sustaining (elevated) profit margins and growing market share, but it did neither with yesterday’s announcements. Rather, it slipped badly,’ Kass said Wednesday. ‘From my perch, market share now is so valuable, not current gross margins — it remains my view that Apple is making a strategic mistake. Is Apple trying to lose as much market share as possible in a world where the value of the market share is immense given the ecosystem that goes along with it?'”
Read more in the full article here.
MacDailyNews Take: Entry point construction attempt or just a fundamental lack of understanding on Kass’ part?
Apple is an aspirational brand.
Tim Cook knows exactly what he’s doing, even if Dougie can’t figure it out.
The Story of the Cadillac Cimarron
The most important part of any luxury brand is its image and one bad model can ruin it. In the early 1980s, Cadillac joined other luxury brands in trying to attract more entry-level buyers with a smaller, more fuel-efficient car. Instead of coming out with a truly new product, GM added the Cadillac crest to what was, in all important respects, a Chevrolet Cavalier. It also added thousands to the price tag.
In all, it was neither a good Cadillac nor a good value. Even GM executives will readily admit today that this was a really bad idea. – CNNMoney
[Thanks to MacDailyNews Reader “First 2014, Then 2016” for the heads up on the Cadillac brand debacle.]
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Apple’s stock price drops after *every* product launch, without fail. Claiming that this is a portent of doom is foolish and short-sighted.
Not to mention, it’s a good sign when analysts DON’T agree with Apple.
Apple didn’t go from being the underdog of tech to the largest brand in the world by thinking like analysts.
Microsoft, Dell and Google releases products to appease analysts, Apple releases products to appease customers.
It’s so true yet time and time again, these clueless writers forget that. So they write these stupid articles on Apple stock dropping and it’s the end of the world for Apple! lol
You’re probably an old-timer like me. I can remember when Steve Jobs knew immediately that new Apple products that he just announced weren’t well received. Apple product announcements are officially hard-hat days in my office.
On the other hand, I think that Wall Street is still living in the past glory days of Windows “disposable” PCs concerning Apple product announcements.
Well, that’s not true. in 2007 stock price jumped and I think there are more examples than 2007 iPhone intro.
But doom generates thousands of clicks.
I think they capitalize on the momentum moments. Eg. The parabolic move last year plus the impending long term capital gains tax made it opportune to sell, this giving a generous window for the bears and Samsung to slam by smear campaign.
This year the “by the rumor,sell the news” selloff also have the bears and smear campaigners to capitalize on public display of “not innovative enough.
Next big news story is the lines to buy are shrinking, why? Ppl preordered, this leaving a window to smear by crying, “DWINDLING LINES!!!” Wait and see!
The 5C looks to be a great product. If Apple could fix the price tag, it would be a brilliant product.
If by “fixing” the price tag you mean make it cheaper, then it will be fixed come next year when it’s still on the market for $100 less, like always. By then it won’t mean flat lined profit margins. Tim knows what he’s doing–he’s the one who designed and built the Apple supply chain, not Steve.
I smell a strategic price cut in the works. A push for market share a couple months after gouging early adopters. Very classy business model.
I think we’re going to see a trade-in program; and that will make this pricing & announcement strategy a brilliant success: By getting *all* the press to admit that the iPhone 5C is not “cheap” — that it’s as good as the iPhone 5 — Apple has let the press position the 5C as a premium product. Once the angst settles down, Apple announces availability in 120 markets *with trade-in program* to make the device affordable to the masses. Apple never lowers the price, so the conventional wisdom remains that it’s a premium product and the desirability of the device remains at the “must have” levels.
They could fix the price if the phone innards would be from iPhone 4S and the model would be truly entry model. But now there is no change in Apple’s price policy. Sales will grow, but there would be no serious change in scale.
You don’t get it, do you? Apple just remade the iPhone 5 at a price which is $300+ cheaper.
Apple isn’t interested in the high volume, low profit markets these lesser phones are selling to. Why bother? Market share means nothing if you don’t make money.
Look at Samsung. It sells (allegedly) more smartphones than Apple, but makes far, FAR less money. So why would Apple want more market share by reducing its price on the iPhone? So it could go to all that work to basically break even?
That sounds like Nokia’s business plan.
Exactly. Just because Apple can make a cheap iPhone, doesn’t mean they have to sell a cheap iPhone.
Well said, Bizlaw.
How can these people not get it!!? The same old tune, with a couple of different words.
– Apple must immediately produce a cheap netbook, or they’re DOOMED, DOOOOOOMED, I tell ya!
– Apple must immediately produce a cheap tower, or they’re DOOMED, I tell ya!
– Apple must immediately produce a cheap phone, or they’re DOOMED, I tell ya!
And so on…
People, you can rest assured that Apple does not take advice from people like Doug Kass and CNBC and Bloomberg ‘experts’. These people have nothing positive to say about anything. They are shills. Buy anything they recommend and you are doomed. The price for the 5C is just about right and it will sell very well.
We will see who is proven right. My money’s on Apple.
You can always lower prices. You can’t raise them. Apple has the golden goose right now with the iPhone, with the highest margins in the industry. Destroying that is a one-way street to Delltown.
Besides, these analysts are forgetting one key thing about market share: the mobile market is not like PCs, as it’s on a two-year (or less) upgrade cycle. So what if Android gains a little share now? In two years those suffering people will be begging to buy iPhones at any price, and by then Apple will have a whole range of iPhone models to choose from. Apple just can’t do it all at once without destroying their brand.
People take their cues from the look of a product. The 5s does not speak to an 11 year old girl and say, “I’m made for you.” The 5c does. It’s a new nameplate: the unpretentious, fun iPhone.
They’ll sell a gazillion of them to the Chevy Cavalier crowd.
Armchair pundits running games of fantasy Apple, can’t see their nose to spite their face.
Apple has determined that the price and value of the 5C is correct and therefore on the one hand keeps people interested in the 5S, and on the other hand maintains healthy profit no matter how many units they sold.
Billions of phones sold, with little profit to losses, is no market share Apple should want to even consider. There is no such thing as a free lunch.
Amazon and Google have tainted how analysts read the market, and frankly Apple does not fit that mold.
The way these guys talk about Apple’s supposed abandonment of market share value, you’d think they sell the same number of iPhones year over year with growth completely stalled out. They continue to sell millions more iPhones than they did in any given year-ago period. iTunes ecosystem numbers are also growing accordingly with billions of dollars in new revenue.
These hacks simply want Apple to completely sacrifice their profits and brand and start churning out cheap crapola because slower yet steady growth isn’t good enough for them.
These hacks want easy numbers to artificially drive up stock. Selling x million phones sounds great, but smart people know to look at the actual profit-per-sale numbers. Samesung clais millions of sales but doesn’t break down which are its marginless feature phones to cater to hacks like this.
I was initially worried about Apple’s strategy here but, seeing all the negative takes from pundits, I believe it will be a raving success. These guys are so clueless you can reliably use them to predict Apple’s success with products (except that the outcome is the reverse of these Anal-ysts’ conclusions).
Their products are desirable , so there are three levels to purchase
4S, 5C and 5S.
All these short sited analysts and everyone forgets about the 4S !
Which is the best physical build of any iPhone to date, imo.
Mossberg shoots straight from the hip. I’ll look forward to his review.
I kinda agree with this statement. The value of Apple’s ecosystem is and will hopefully continue to be huge. They make 30% of every sale on the phone (app, music, etc.) In MY opinion Apple should be GIVING phones away; make the $$ up over time.
This wouldn’t cheapen the brand. They’d still have best in industry 5S for those who want to pay.
They slip here then they risk allowing another ecosystem to rise to the front… it’s not like they haven’t made that mistake before.
Hope I’m wrong…
Definitely, Apple should be giving out iPhones for free to save their failing ecosystem !!!
Were you last in line when the DNA bank dished out brains?
You’re not making sense: the people who buy cheap phones aren’t the kind who buy apps or media. Just look at Android: the vast majority are used as feature phones. That’s useless market share, especially with zero profit on the hardware.
Look, if you can’t afford an iPhone, you damn well can’t afford dabbling in the Apple Ecosystem.
The iPhone 4S is free with a two year plan. Do you have your head up your butt too?
If you can’t afford a two year plan buy a feature phone from Samsung and buy month to month coverage.
The 5C is not the “world phone” for the emerging markets. It’s the margin preserving model to take the place of selling the obsolete iPhone 5 at prices that don’t support current margins. The 5C has a reduced cost of production that makes it a margin preserver in its current slot.
There will be a “world phone” for the emerging markets, but the 5C is not it. There will be a China/India-only phone that’s compatible only with the technology employed in those countries. Look for it as soon as negotiations with China Mobile are completed.
So that “new phone” should be out within the next month or two? If not sooner. What will it be? A dumbed down 5C? A completely new phone? Haven’t heard about this “new phone” anywhere. Haven’t seen that rumor on any Apple site. Would think that we would have heard about it by now? That must be the only secret that Apple can keep then?
That didn’t take long for him to say something..
I love that people are complaining that is when Apple does the best.
“growing market share is actually more valuable”
Yes, those companies with so much more market share than Apple are making SO MUCH MORE MONEY then Apple. 😎
How valuable is the market share of all the various computer makers?
And Microscum — way more market share than Apple in computers. But it’s some time now that the iPhone division ALONE has been worth more than ALL of Microscum.
I know my 13 year old daughter ( she’s been using a broken iPhone for 7 months, waiting for the new release) is, she absolutely wants the 5c over the 5s….
I think they will sell more to the younger crowd than the analysts expect….
Complainers complained everything, from wives, kids, jobs, foods, cars, friends, strangers, relatives, politic, and above all, the iPhones. etc.
Let there be no doubt that Doug Kass knows a good deal more about emerging markets than the people at Apple.
And based on the whimsical nature of the 5c, it’s not even clear that that line is even targeted at emerging markets. The impression it gives is that it’s a FUN iPhone.
Maybe the iPhone 4 can penetrate emerging markets. It’s still a better phone than any of that Android crapola.
Moreover, the cheapest phones of all are those 20 dollar pay-as-you-go phones. That’s what truly poor people will get if they really need a phone. But if you’re buying a smartphone on contract, you’re probably not all that destitute to begin with.
I don’t want to comment on the new phones but I would like to say don’t read Kass about Apple.
He’s a hedge fund guy. Last time he badmouthed apple continuously on CNBC etc, riding the stock down with shorts. Then at a very low point he sheepishly announced he had bought millions worth and that he’s negative thinking about aapl was mistaken. Then he rode the stock up again…
When an ‘analyst’ gave a questionable call on RIM several months ago the head of RIM called Canadian Government and the SEC. No more analyst problems. Hate RIM if you want but that put the few of God into those ‘analysts’ . But Apple and won’t fight back (instead they would rather spend billions in buybacks to push the stock up… )
the 5c should be an easy product to understand. Why sell the previous years model at a discount in premium trappings? Why cannibalize yourself so needlessly?
it is actually a genius move and actually up sells you all by itself to f you could afford either.
Apparently the analysts will never understand Apple’s incrementalist strategy. They will not swallow entire markets in one gulp and be accused of monopolist tactics, rather, they will create new markets and take over the high end of existing markets.
The Cadillac example doesn’t hold here. GM owned other car companies which made cheaper cars and could gain greater market share. There was no need for the luxury brand to cheapen itself. It would never sell in volume anyway. But Apple doesn’t own a low-cost phone manufacturer. They needed to come out with something affordable for emerging markets.
Let me try and make this clear:I saw a map which on which is drawn a circle around China, India, Indonesia and Japan. Over HALF the human population resides inside that circle. They are basically writing off all but the richest members of that population group. This is financial suicide (I don’t care how great their margins are). In a year the iPhone will be 10% of that market (if that). If Apple is happy with that- then fine.
But it doesn’t have to be this way. They can make 40% on 10% of the market or they could make 15% to 85% of the market (they would blow Android out of the water if the 5c was $350- which still isn’t cheap, but at least it’s competitive). Do the math. Which one will make them more money (and thereby increase their stock- which I, btw, hold)?
As a shareholder, I’m DEEPLY disappointed that they learned nothing from the Mac experience. I’m not saying they should build crap. I’m saying they should at least be competitive where it counts.
How wrong can one stock speculator be?
If you can afford $350 for a good smartphone, you can pay more for the best smartphone.
If you are working in a third world factory making $200 a month with free room and board, you buy a crap feature phone from Samsung.
If you are a third world farmer barely making a living, you don’t need a damn phone.
Actually it does hold. GM was attempting to gain market share from smaller cars that included the small BMW’s. instead of developing a platform to compete with it GM decided to add a Chevy J Body. Well, they also charged extra for the same car by many thousands. Had it designed a quality car and charged a similar price to BMW it would have brought in more affluent customers to the Cadillac brand. Instead it was compared to the Chevy in build which was Competing with low end cars of Toyota. It did more damage to the Cadilliac brand than just poor quality. It was now compared to the Corolla and not the BMW’s. likewise, if Apple choose to lower the price and quality to that of the low end Android phones, that would be the level of quality people would perceive it to be. Apple has chosen to keep a premium product with premium quality as a brand to buy up to. Apple is no need to slum there products in the pig pen of Android.
You cannot be both ubiquitous and exclusive. Apple’s attemp to be both might result in it becoming neither.
When you can no longer “Wow” people with a product upgrade, you’re on the path to commoditization. As fewer people see smartphones as a luxury, fewer people will buy Apple iPhones unless Apple address the maturing of this market.
BTW… I reject Apple as a luxury brand. These are the same people who think Starbucks and Panera are luxuries. Pathetic.
How do you say “Wow!” In Chinese? How long have you lived there. What do you know of the Chinese market, the Chinese income, the Chinese personality? Con you say “nothing.”
Where did I mention China? Is that where you learned English?
I think they are looking forward to a larger-screen iPhone and, like the 5C, it will be made out of plastic as well… The metallic phone will be discontinued… Thus – rather than looking at a cheap phone for emerging markets – they are poising themselves for the future. By the next larger screen release, the 5C shall be bug-proofed and ready for Touch ID, better camera, etc….
“Instead of coming out with a truly new product, GM added the Cadillac crest to what was, in all important respects, a Chevrolet Cavalier.”
Apple did just the opposite. It took a full fledged iPhone 5, and re-packaged it in a cheaper, plastic enclosure.
This isn’t fully accurate.
Apple could’ve just sold the iPhone 5 at 100 dollars cheaper – like what happens to all ( older ) iPhones when the new one comes out right ?
Instead, they have the 5c a bigger battery ( last about 2 hours more ), they gave the 5c the better front camera found in the 5s, and the put the same radio in the 5c that’s found in the 5s ( which covers more cellular LTE bands )..
So while Apple saved alittle putting this in a plastic case – it’s a few better components inside and is actually a decent upgrade over the iPhone 5 hardware considering – AGAIN- that Apple could just gave you the older hardware at the same price they are now selling the 5c at..
Great to see Katy Huberty from Morgan Stanley do a live piece on CNBC defending Apple’s move from an investor perspective, not jumping on volume share bandwagon like dumnass Kass.
Jump to 2:35 in this video
http://video.cnbc.com/gallery/?video=3000198252
Does anyone pay attention to the messengers of doom and their silly rants? Presumably the China Mobile launch will be announced next week, in China! As others have pointed out, the 5C will be $100 cheaper next year and free on contract the year after – and still profitable for Apple. Apple know from existing sales data how many buyers to expect for the 5C – the 4S has sold well these past 12mths, and the 4 also. Furthermore, a China Mobile deal and an additional Japanese channel will add significant volume this year, and Apple’s supply channel will be working hard to keep up. The 5C is designed to appeal to tier 2 and tier 3 customers who won’t buy the 5S – it is specifically designed to be competitive and profitable in 2014 and, especially, in 2015 when it is free on contract. At some point, perhaps even in the next 12mths, there will be a price reduction at the top end – and this will ripple down through the three tiers, so the 5C needs to be profitable when this occurs. Phones will get cheaper – just like Macs.
The iPhone 5 lives on in the 5S – allowing Apple to amortise development costs over 4 years assuming it is retained next year and the year after that. Remember that a 3yr old iPhone will run the latest version of IOS, so it will still be competitive against a brand new Samsung at the same price point.
Apple plans ahead. The pundits can only see the next 90 days…
Once again, everybody, click on the MDN tag link for “Doug Kass” and peruse his history of predicting and advising Apple.
Thank you, MDN, for a truly valuable resource!