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. The only overall category Apple have retained a large market share in after before and after the market reached a peak is the iPod and that’s in part because the costs were low enough (because of what they were) that Apple didn’t give other companies much room to undercut them without selling at a loss even if they could somehow be deemed to be of comparable quality.

    The phone market is much broader, there is a much more varied market of customers. Reducing prices would potentially have more negatives than positives.

    The main justification people seem to use for a lower cost iPhone is market share, but in most instances it’s people wanting a full spec iPhone without paying for it. I never read articles from people wanting a lower cost iPhone where they state what sacrifices to the specs they would deem acceptable and that would still sell in any volume, and that isn’t served by older models that have been stepped down by the new ones.

  2. Great comments, great discussion. Few thoughts:

    1. Market share in phones is just one part of a bigger picture. When Apple gets a new iPhone customer they potentially get a new ecosystem customer for iMacs, iPads, airports, itunes, and all the other Apple products that Work together, and make (my) life more convenient. That is not reflected in just the market share of just one item, phones. And frankly the lower income person (Whose life is likely not a complicated web of appointments and coordination of schedules with others) probably can’t afford to enter that ecosystem, So white pander to that market segment? They are not going to enter the ecosystem! So it makes sense in the broader view. And so far Samsung, Google and Amazon have not been able to create such a rich ecosystem.

    2. Apple can sell the iPhone 5C at a different price in different in different countries. They have done this before. They can lower it, too.

    3. Someone in another thread said: why would the 5C need a case if the plastic was actually scratch resistant? Well. Go to the Apple site and play with configuring different colored iPhone 5cs with different colored cases –with all those holes punched in them — and there’s at least a dozen different interesting color combinations that you can make. Now many people know that in Asia ‘gaudy’ colors are much more popular than they are in the west so this will be a big feature. Also as other people point out, children and young people are more attracted to the color combinations in my opinion.

    What seems strange to me though, is that when you put one of Apple’s leather cases on a iPhone 5S, it completely covers the color of the iPhone, so for example your champagne gold iPhone, becomes a black iPhone, because you completely covered the phone.

  3. Not everyone wants the fingerprint sensor or the high end camera. Allot of people would be thrilled to get an iphone with the larger screen and the cool colors. I see tons of people who dont put cases on their phones so the color options make that great for those people.
    Besides $100 is a $100 and allot cant make that jump. Sure over 2 years its nothing but its $100 when you get the phone. I like the 5C. the only thing on the 5S that was interesting to me was the new camera and flash. I dont care about the 64 bit processor nothing i use my iphone for would really take advantage of that.
    But i do like it i think there is room for more then 1 iphone. $99 is a huge price point for people. Its that double vs triple digit price. Android does it and it works. Allot of people dont want to pay $200 for a phone. As seen by the fact that 50% of sales last year were to 4 and 4S. So now for $99 rather then last years phone you get a Current model and you get colors and teens and youth are going to love it. PEople will be saying oh what color did you get.

    1. No. It’s all about the contract terms.
      SIM only deals in the UK are £10 per month. (typically unlimited txt, 100min talk, 250MB data). So pricing above that is the true cost of the phone added to the £99 you pay up-front.
      We will see what deals the networks offer but I bet its alot more expensive than £349 – 99.

  4. Check John Gruber’s column, in a few words what he is saying is that there are 3 slots: 1) New iPhone (in this case the 5s), 2) Older iPhone (now a new one instead of using last year 5, there is the 5c whose specs are basically a 5)
    and 3) A two year old iPhone (4s).

    So the 5c is Lower price but not that much cheaper. So that Apple Strategy hasn’t changed towards a very low cost iphone in the second slot. I guess that explains Wall Street’s disappointment: they expected a very low cost iPhone

  5. I was disappointed with the event, first because it wasn’t live streamed and second because absolutely every detail had been leaked. I suspected (and commented here) that Apple would discontinue the iPhone 5 and repackage it in plastic. It does make more sense than selling what is perceived to be an old phone for less each year. I just wonder what will happen when the iPhone 6 is released – will we have the iPhone 5S repackaged in plastic and called the iPhone 5SC?!

  6. One thing that seems missing for commentary is that these new phones also include in their pricing the iWorks suite and a couple other apps that together sell for older iOS devices for about US$50. Given that value, the effective cost of new iPhone 5C is about what pundits had hoped for.

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