“The iPhone 5C is being proposed at $99/$199 (16Gb/32Gb) on contract, but most importantly, it will carry a price of $549/$649 (16Gb/32Gb) off contract,” Paulo Santos writes for Seeking Alpha. “And what this means, is simply that the 5C is not a ‘cheaper iPhone.’ It will actually cost the same as what one would expect the iPhone 5 to cost with the introduction of the iPhone 5S. But while the iPhone 5C shares most of the iPhone 5’s specs, it’s decidedly a much more downmarket device! And it’s also certainly much cheaper to make than an iPhone 5.”
“This means that the notion that we could see substantial cannibalization from the iPhone 5C is basically dead. Instead, it will actually avoid cannibalization of the iPhone 5S, after all it’s a much more downmarket device than an iPhone 5 would otherwise be. And with the retirement of the iPhone 5, it becomes impossible to have a similar (in appearance) device to the iPhone 5S at a discounted price,” Santos writes. “According to AppleInsider, as much as 50% of Apple’s sales were iPhone 4s and iPhone 4Ss, and just barely above 50% was the iPhone 5. With the iPhone 5C, I’d expect this ratio to again skew towards the iPhone 5S, benefiting revenues, margins and earnings. I believe this because it makes little sense to buy a so obviously downmarket iPhone 5C at such a small discount to the full-fledged iPhone 5S.”
“While the lower cannibalization fears are a positive for Apple stock, there is also a negative in this development: It’s highly unlikely for Apple to gain much market share with the iPhone 5C. It’s not cheap enough for that,” Santos writes. “I’d thus expect Android’s march towards higher smartphone market share to continue. What this means is that the 5C is a short-term positive for Apple in leading to less cannibalization and higher margins, but a long-term negative in enabling further growth of the competing Android ecosystem.”
Santos writes, “In short, the true objective of the iPhone 5C turned out not to be expanding Apple’s presence in the market — instead, due to its high price and weak image it’s looking like the objective is simply to contain the already existing cannibalization between iPhone models while improving margins on older/cheaper models.”
Read more in the full article here.
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