The true objective of Apple’s new iPhone 5c

“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.”

Apple's new iPhone 5c
Apple’s new iPhone 5c

 
“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.

Related articles:
Why would anyone buy an iPhone 5c instead of an iPhone 5s? – September 10, 2013Apple reveals flagship iPhone 5s with Touch ID, the world’s first and only 64-bit smartphone – September 10, 2013
Apple unveils iPhone 5C; pre-order September 13th, on sale September 20th – September 10, 2013
Apple to release iOS 7 with completely redesigned user interface on September 18 – September 10, 2013

62 Comments

  1. Analysts galore. Opinions everywhere. Reality lost in the very temporary glow of Apple theater. We’ve got the usual, incremental upgrade in the phone folks along with a way-to-late plastic one in desperate attempt to compete, especially with Samsung, with all the other cheap ones eventhough the plastic one is not cheap. Actually a step backwards. That’s all there is. Investors responded as you would expect them to when Tim Cook has again taken the stage and given them NOTHING. But, there’s great products in the pipeline, right?

    1. It’s overstating it to say he’s given them nothing, Jay.

      As for the pipeline, that hasn’t emptied yet, and we’ll measure the results when it does, later on this year. Hold the invective until then.

      Incremental upgrades are Apple’s pattern, and should not fuel any hysterical speculation. Par for the course does not equal abject failure.

      Tim Cook may be a failure as a spiritual leader, a visionary, and an inspiration. So were the successors to the founders of the Franciscan and Dominican Orders. Yet those Orders, by virtue of their ineffability and intrinsic value to humanity, thrived despite tentative leadership.

      As Apple devotion is scarcely discernible from religious devotion at times, caution would seem advisable in dismissing the faithful as fools, or the new leadership as deviant, immoral, tyrannical, or even just inept.

      Too many people like Apple for reasons obvious to a four-year-old child. Diatribes have no effect whatsoever on their thinking, except to alarm them to the presence of a maladroit intruder on their realm of consumer utility and emotional satisfaction.

    2. My research may extend one person further than yours. My 14 year old daughter starting lining up baby-sitting jobs so she can replace her 4 with the blue 5C.

      The buzz I heard this afternoon suggests all those thinking through positioning and cannibalization and differentiation and leadership ought to just stop and instead go listen at a coffee shop, bus stop or Panera Bread Shop — they might be surprised with what’s really going on in the marketplace.

      1. The sales figures will be staggering !

        These iPhones will break all previous sales records and as usual the analists will only then see how blind and out of touch they are, though they will never repent forbthe lined pockets that assure future bias.

    3. Does anyone from Apple read the comments on this website?
      99% of contributors have completely slated Samsung for the cheap plastic over the last few years.
      Why couldn’t the 5C have coloured aluminium (I’d wager the addition cost is no more than a buck) and keep the brand up market?
      Another gripe is memory. The price difference between 16 and 64 is obscene.
      Other manufacturers charge less than half for the same upgrade. By my very rough calcs the margin is over 1000%. Great for Apple, not so great for us consumers.
      A little disappointed overall.

        1. As soon as someone has a different opinion about Apple, people on this site instantly turn against them and tell them to go to Samsung.

          “If you’re not overwhelmed with joy on the new product line, go away! We don’t need you here! And we damn sure don’t want to hear your opinions!”

    4. Apple just released the most advanced mobile computing platform in history, and all you can do is bitch about Tim Cook. Fscking-A, you’re just like a mommy’s-basement-dwelling Android twat.

      So many spoiled little twats saying “Apple shoulda” this and that. Ugh, it’s tiring. Just go get your stupid Android and GTFO. Or STFU with your bitching about Tim Cook. Whining goddamned pussies.

  2. “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

    Who cares. Market share has been a Red Herring for years. Profit Share is what counts. What, you think any Mobile Developer would dare not make their app for iOS?? Of course not. End of Story.

    1. Absolutely. Market share is pointless if there is no profit.

      The ‘c’ is for ‘colour’ – not for ‘cheap’ or for ‘cannibal’. Two phone types and many many colour combinations adds to choice and widens the appeal of an apple smart-phone to a wider audience, whilst also preserving margins and profits for the company and it’s resellers & agents. I can’t see it being a failure.

      Buy stock now before Wall Street bounces back to reality after it’s earlier incorrect presumption!

      1. Actually, that’s not true. Samsung is doing QUITE well in profit AND market share. It can be done. Apple is totally blowing it here. They will be relegated to 20% market share forever. The sad part is that they are happy with that…

        1. I disagree. Apple is fighting back. Not only in recognising that it was perhaps complacent given it’s earlier innovation lead and reputation, but also in addressing the needs and behaviour of wider markets and their emotional buying decisions that go beyond, or are instead of, the purely technical.

          In this I see a response and reaction to Samsung, not a shrinking back to a relegated position. I doubt there is any ‘settling for second’ in Apple right now.

        2. Samsung isn’t doing as well as some imagine. They’re still spending an immense amount on advertising and marketing and are looking to reduce that expenditure. Clearly the recent marketing budget wasn’t sustainable.

          The big question is how well will they do once that marketing budget is reduced ?

          Getting real figures from Samsung is a nightmare. They don’t give sales figures and their accounts are rather obscure. People who report on Samsung’s financial performance have to make assumptions and those assumptions can significantly skew the end result. If you want to write a good story about Samsung or a bad story about Samsung, you can select the assumptions to make and get the story that you want.

        3. Er, if Samsung is doing so well, then WHY were OVER 50% of the smartphone activations at Verizon Wireless iPhones?

          Samsung is getting the cheap, pre-pay market predominantly overseas… and the Galaxy Note? Yeah, I want to look like a total DORK answering my iPad Mini!

          Then we have the browsing data & app store purchases… BOTH of which iPhone blows away Android! This is a HUGE problem for Google as they have not been able to monetize the Android platform/app store, let alone even convince users to BROWSE the web on Android!

        4. Samsung makes everything including the kitchen sink. Vacuums, washers & dryers, TVs, cameras, DRAMs, phones, tablets, etc. etc. etc. Not sure how this factors in, but never-the-less.

  3. Nonsense. The 5c will prove much more popular than anyone now predicts. When people get one in their hands, they will really like it and the colors, and that $100 will make a difference, even if logic says it should not. Two people in my office bought a 4S even though the 5 is superior because it was good enough and only $99.

  4. It will sell we’ll enough. They can lower the price on this one in perpetuity and sell a ton. 3 years down the road, when the 5C is $349 off contract and still raking in a decent margin, people will say Cook made a brilliant business maneuver. Also, imagine all those colors paired with matching wallpapers in the stores. They will catch a lot of eyes with proper store displays.

  5. The “true objective” ???

    Apple, now acting like any other corporation on the planet, has only one real objective: to line the pockets of the corporate officers.

    What is the tactical goal of releasing the iPhone 5C? Well, that should be obvious: to use up the last of the iPhone 5 internal components for yuppie kids while well-heeled consumers who demand the finest smartphone on the plant purchase the iPhone 5S.

    Colors? Who cares about colors when the first thing that happens to every phone is that the buyer shoves it into an overpriced silicone sock?

    1. There’s some truth to this…though let’s skip the first paragraph about lining pockets, etc.

      Young people will instantly see the value of a rocket phone (last year’s premium model) in a fun somewhat more robust casing that won’t necessitate a bulky extra protection. And like many young people, they will lose their phone and then, a bit older and wiser, will consider replacing it with a fingerprint ID model.

  6. Well of course, I thought we were all on this same page long ago. The 5c is genius in this respect and is years too late. it would have been crazy to offer the 5 this year as the discount model with the 5s

  7. The 5c is intended for aspirational new owners, in developing markets, where a pre-paid market is the norm, rather than the rule.

    But as others have stated, what is surprising is the pricepoint, which is much higher than what analysts and even Apple pundits expected. But I think there is a reason for it.

    One of the more interesting surprises is the inclusion of iWorks, iLife and iPhoto as free downloads for new iOS owners. Indeed, this not only pleases established markets, but developing markets will appreciate it even more as these apps are just as aspirational (and obviously productive and useful) as the iDevice itself.

    The pricepoint provides enough “cushion” for localized marketing/sales campaigns, where resellers and carriers can use different incentives (i.e. margin) to only consider the 5c (e.g. iWorks, iPhoto, iMovie and a iTunes card)… Remember. Apple will be entering regional, mature markets where Android is the rule, but note that the Android Marketplace lacks apps at the caliber of iWorks, for example.

    Ah. Are you understanding my perspective now? Indeed, since the web-based iWorks (and iCloud) will be somewhat superior to what Google offers (e.g. Google Docs) and of course, free, Apple is offering apps/services that are far more compelling and truly useful.

    We shouldn’t focus too much on the spec-sheet of the 5c, it’s Android competitors, price-points, etc. We need to see the big picture, as Steve Jobs (and company) had seen it, beyond singular devices… the entire eco-system.

  8. In 12 months time, my guess is that the internals of the 5S will be popped into a similar plastic case and the 5S superseded by a new iPhone 6.

    The only thing that puzzles me is what to call it ? Initially I assumed that it might be called iPhone 6C alongside that new iPhone 6, but what then happens in another year when they launch the iPhone 6S ?

    The sequence that seems most likely would be …
    2013 iPhone 5S and iPhone 5C
    2014 iPhone 6 and iPhone 5SC
    2015 iPhone 6S and iPhone 6C … and so on.

  9. I am very disappointed. I was hoping for the “iPod approach” where Apple offered high-quality mp3 players at a variety of price points–I own a shuffle ($49) and a touch ($300).

    The profits for Apple are great now, but they are giving away a huge group of people who would be willing to buy Apple, but not at the 5c price.

    1. Those that pass on the 5C will opt for the free iPhone 4S.

      Do you really think that people will pass on the free (only to the end user, not the telco…) iPhone 4S???

      Apple does sell these to the telcos you know…?

      With options from zero up for the Apple iPhone mobile ecosystem, free apps and superior everything, why would anyone want anything but an iPhone?

            1. In the UK a sim only deal ( ie. phone agnostic is £10-15) costs above that are what the company adds to make up the hardware element. + up front pricing.

              Then there are sim free PAYG deals – essentially you buy the phone at a slight discount if you are lucky and agree a regular top-up value.

            2. I think you have lost the plot of your arguement. If Apple price the 5C low enough ( sim free pricing) the telco’s can and will offer cheaper data/minutes plans alongside the ‘free’ phone.
              You then select the data plan you require and pay the difference for the phone model. At present the best deal for a 4S is something like :
              O2 24 months
              300mins
              Unlimited texts
              500MB data
              for an upfront cost of £69.99 and 24 months at £22.00
              per month.
              The same data plan as a sim only deal would be about £11 per month. That means your phone costs you 24x 11 +69.99 = £334. If the release of the 5C brings the cost of the 4S to ‘free’ the cost over 24months is £264. You can of course use othe data plans as sim only or with an iPhone to make the same comparison.

            3. max, thanks for sticking to facts. breeze is known to be uncivil and insulting, especially when objective people prove the fallacies of his narrow views of the world.

              In my opinion, it was wise for Apple to offer a different-looking mid-range smartphone. What is questionable, however, is how Cook chose juvenile colors, then priced it out of the range of the kids who actually like pastels. Obviously Apple thinks its venerable old 4S (with 30-pin Dock connector and all) is going to compete against the onslaught of competition. Time will tell.

  10. Apple can easily lower the price once the initial demand is over. In six months time the price could drop by $100 and they could replace the 8gb 4s with a 5 c version.
    What this does is introduce a second current iPhone product. The specs were improved over the 5 in terms of performance. Gradually lowering the price squeezes the competition to the point that they lose all profit margins. Remember apple did not release the shuffle for a number of years after selling the mini / nano. They waited for the right time before totally killing the market for competitors.

Reader Feedback

This site uses Akismet to reduce spam. Learn how your comment data is processed.