Apple opts for profit over market share with not-so-cheap iPhone 5c

“The higher-than-expected price of Apple Inc’s new cheaper iPhone eased worries about gross margins, while arousing concerns the company was not being aggressive enough in its fight against Google Inc’s market-dominating Android operating system,” Eileen Anupa Soreng, Neha Alawadhi and Saqib Ahmed report for Reuters. “‘We worry that Apple’s inability/unwillingness to come out with a low-priced offering for emerging markets nearly ensures that the company will continue to be an overall share loser in the smartphone market until it choses to address the low end,’ Sanford C. Bernstein analysts said in a note. Still, Bernstein maintained its “outperform” rating on Apple’s stock, saying that it expected the new iPhones to have little impact on gross margins.”

Soreng, Alawadhi and Ahmed report, “‘Rather than offer attractive pricing for consumers, and move the iPhone 5c into a new and growing price segment, Apple retained a premium pricing strategy in targeting the $400-800 smartphone segment,’ Credit Suisse analyst Kulbinder Garcha said in a note. Garcha said that Apple’s share of the smartphone market, where it faces intense competition from Samsung Electronics Co Ltd, would likely fall to 15.5 percent this year and 13.1 next year from 18.1 percent last year.”

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

 
“Saying the 5C was “nobody’s low-margin phone”, Cowen and Company analyst Timothy Arcuri said Apple’s new relationships with Japan’s NTT DoCoMo Inc and China Mobile Ltd supported the view that 2014 Street estimates for Apple earnings looked too low. Arcuri said gross margins for the 5C appeared to be as high as the mid 50 percent area,” Soreng, Alawadhi and Ahmed report. “Lazard Capital Markets raised its share price target to $570 from $500, noting a ‘best in class user experience… With escalating investor focus on Apple’s diminishing product differentiation, slowing growth and margin compression, we think it’s time to revisit what makes Apple unique,’ Lazard analyst Edward Parker wrote in a note. ‘We propose that Apple is a ‘storage’ company, not only levered to data creation but instrumental in driving data creation in ways its competitors are not,’ he said.”

Read more in the full article here.

MacDailyNews Take: By SteveJack

Many analysts also called for Apple to invest their resources in creating a cheap netbook.

Those “analysts” didn’t understand Apple then and they don’t understand Apple now.

Apple does not exist in order to pile up meaningless market share. Apple exists to delight customers.

When you do that, you end up with the best customers – the cream of the crop – the type of discerning customer who will pay for apps and content, not constantly expect coupons, BOGOF deals, and other assorted freebies.

The also-rans of the world can have as many of those type of “customers” as they can amass and they can swim in their meaningless, bottom-of-the-barrel “market share” until they drown.

SteveJack is a long-time Macintosh user, former web designer, multimedia producer and a regular contributor to the MacDailyNews Opinion section.

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The true objective of Apple’s new iPhone 5c – September 10, 2013
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

50 Comments

    1. I really don’t understand the thinking of analysts, and even the stock price trackers here, that think the primary purpose (or even equal importance) of Apple is “Stock Price”. Stupid!

      Lets see now: “Apple, make a product so that the price will go up according to Wall Street, (those that don’t use the product that much.)” Their primary and seemingly ONLY interest is stock price over and above everything else. Their focus is “Get a product that we can project for stock price purposes.”

      When stock price “purpose” drives development, pure quality product development gets put aside, as Ballmer did!

  1. Many analysts seem not to understand that the laws of supply and demand are more important in any pricing scheme than marketshare bragging rights. Marketshare can be increased by a decrease in profit share. Profits pay the bills. A press release touting marketshare does not.

  2. Baloney.

    There is a glut in android phones at the US carriers.

    This next two Qs will see iPhone share at 80 percent of sales.

    As far as the third world goes, feature phones are being heralded as smartphones. It is pure baloney. The only first world country that swallows the android line are the cheap Germans. That will all changed with the 5c and 5s. Especially with the 5s fingerprint.

  3. iPhones running iOS7 are now essentially available to everyone in every price range.

    Even the FREE older 4S runs cirles around any current android alternative, is build quality, support, software, funtionality and longevity.

    State one good reason why anyone who wants a smartphone, would buy anything but an iPhone.

    1. Bigger screen?

      Apple might not want to play in that space, but every time an MDN fan dismissively tells a potential iPhone user to “get an Android” because of the screen size, they validate that as a “good reason” to not buy an iPhone.

        1. The Galaxy S4 resolution is 441 ppi. The HTC One resolution is 468 ppi. The iPhone 5S resolution is 326 ppi. Apple lost the screen resolution argument some time ago.

          Quality housing and grip has nothing to do with the screen. Anyway, over half the iPhone users I see put a case on it anyway, so the point is moot.

          Screen picture quality on the premium models is comparable to the iPhone, or otherwise good enough.

          That leaves fitting in standard pockets. First, not everyone’s going to a ridiculous 5.7″ screen, even a small width increase is enough. Second, if people want a bigger screen, that’s a tradeoff they’re obviously willing to make.

        2. From Mossman: The Galaxy S4 resolution is 441 ppi. The HTC One resolution is 468 ppi. The iPhone 5S resolution is 326 ppi. Apple lost the screen resolution argument some time ago.

          False? Or your Apple cheerleader ass was just handed to you …

          1. Not one good reason for anyone to buy anything but an iPhone anymore.

            The bigger size eventually becomes a practical hinderance and though you may be right on the ‘spec’ the retina display looks crisper in most people’s wonder.

  4. I don’t see why people are ranting and raving about the iPhone 5C. This sounds almost exactly like the iPod Nano from the mid 2000s. No one said “poor people are going to like Apple now”, “Fire Steve Jobs”, and other nonsense I see from people here. Besides, it looks something a kid might like, while regular iPhones are for business people by comparison.

  5. So who said Apple was going to make a cheaper iPhone? The 5c is just the same mid-priced model, with a new body style, when the new top iPhone pushed the previous models down the chain. Apple standard operating procedure. Just because the pundits proclaimed Apple would make a cheap iPhone doesn’t make it so.

  6. I believe the move to plastic is about higher production output. The big problem when the 5 was they could not build enough of them; the manufacturing process was to complex. Now they can keep up with demand. Having a sellout on the first day is great; not having enough in stores a month later just gives impulse buyers to your competition. Delaying launches just insults the nation you want to sell in. Now they can launch in the largest markets, epically China, on day one. Capturing impulse buyers will help keep market share up throughout the year. Did you notice they are selling the 4S, with OS7 and iWork, free on contract? That do have a product for the low end. What will the Apple haters say when market share goes up?

  7. To play the Devil’s Advocate, I am going to guess that the Phandroids claim that Android has better emulation of older systems, and that since Android is Linux based, it would be “easy” (by neck-beard standards) to run a full Linux distro on an Android device. Since I have no stake in this, I’ll just stay with my iPhone, thank you very much 🙂

  8. My son stupidly bought a Droid, has lived the last 2 years suffering Droid Regret, and now he can’t wait to pre-order the iPhone. Live and learn. Cheap is not BETTER. Market share does not equal QUALITY EXPERIENCE. DUH!

  9. So, did your son stupidly move out into the ‘Boonies just to get some “fresh air”? Did he get Hick’s Remorse, and eventually move back to Civilization? It sounds like the same story I see everyday. People think the big city is scary, and the suburbs, or even America’s backwaters, are Heaven, or something. The same thing happened to Detroit. The people who left a once great city, and decided to move into Pettycoat Junction, should be ashamed of themselves. Detroit has (had) more culture and class than any dirty Hee Haw town.

    1. Why are people’s private decisions of where to live any of your business? People move away from cities like Detroit to escape certain demographic elements of the population which are disproportionately prone to violence, sociopathy, illiteracy, illegitimacy, irresponsibility, underachievement, uncouthness, obnoxiousness, lack of impulse control, lack of empathy, general chaos, and other signs of cultural rot and decay. Why would any decent family want to be around that? A family’s concern is to advance its own interests, not those of a city which does everything it possibly can to become a 3rd world cesspool. And if the people who inherited the city cannot maintain the prosperity built up by the previous culture, it is perhaps long overdue for those very same people to take a long hard look in the mirror, instead of blaming everyone else.

      1. This is not my comment. A troll decided to log in with my name to make me look bad, because of an argument about the iPhone 5c last night. It is unfortunately easy to log in as any name you like on this site. I would never disparage anyone for their lifestyle decisions.

    2. Christo, by choice I live in a log cabin in the woods, in a scenic county with a population of 15,000. The largest town in the county has a year-round population of 1,000.

      From my workstation I’ve got a panoramic view of the forest outside. A deer just walked across my patio.

      “Hee-haw”? Hardly. There are plenty of good restaurants. A good university is nearby. Good health care facilities. World-class music performances. A good public school system. A thriving art colony. Within 20 miles I can see examples of design by world-class architects.

      Friendly people and a very low crime rate. I never bother to lock my doors when I leave the cabin.

      As I work on the Internet, I can live anywhere in the world I choose. This is my choice, not urban life. I’ve traveled extensively on three continents, and found this place.

      I won’t tell you where it is. We already have just the right number of residents. Please don’t move here. 🙂

      1. I am sorry if there was any confusion, or misunderstanding. Someone else posted as my name, as a way of making me look bad. I got into a heated argument about the new iPhone 5c, and I feel this is some type of revenge thing. It’s very immature, but still. I would never insult anyone because of where they live. Once again, I am sorry for anything, someone has said under my name.

  10. The race for the bottom is a profit-less endeavor. It’s only a matter of time before these companies, including Google, realize this- Dell would have been toast long ago if it weren’t for Microsoft carrying them along. But the outcome is routinely the same- when you emphasize market share and ‘cheap’ ideas over profits and innovation, you go bankrupt.

  11. Wall Street is out to ruin Tim Cook and Apple. Apple shareholders are getting totally shafted. Icahn said buying Apple is a ‘no brainer’ and the company is like another Netflix. What a freaking joke. Take a look at Netflix stock and Apple isn’t even close. Both Wall Street and the smartphone industry hates these new iPhones. They hate them with a seething passion. They haven’t even gone on sale yet and they’re being called instant failures. Four analyst downgrades in one day has to be some sort of record. I thought things wouldn’t necessarily turn out grand but this is getting downright ugly. Now I know exactly what they mean when the analysts say Apple jumped the shark. It appears Apple has jumped a whole herd of sharks.

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