Doug Kass: Apple is making a strategic mistake with iPhone 5c ‘dud’

“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.]

Related articles:
Doug Kass goes long with Apple Inc. stock – May 23, 2013
Doug Kass: I made a mistake on Apple – March 7, 2013
Doug Kass shows how easy it is to manipulate shares of Apple – February 27, 2013
Can the U.S. SEC prosecute Doug Kass over Apple stock split rumor? – February 27, 2013
Rotten rumors of impossible Apple stock split helps fund manager Kass clear profits – February 26, 2013
Apple stock split rumor pushes shares higher – February 26, 2013
Doug Kass: Apple to announce stock split on Wednesday – February 26, 2013

66 Comments

    1. 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.

    2. 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

    3. 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.

    4. 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!

    1. 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.

    2. 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.

    3. 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.

    4. 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.

      1. 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…

        1. 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.

  1. 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.

  2. 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.

  3. 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.

  4. 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.

    1. 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.

  5. 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).

  6. 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…

    1. 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.

    2. 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.

  7. 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.

    1. 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?

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