Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Apple Pares Down iPhone 5C Orders Due to Poor Sales


This is why the stock dropped after Apple announced its "cheap" pricing.

The cheap iPhone is neither cheap, nor seen as the real iPhone. Discuss.

Apple (NASDAQ:AAPL) has reduced orders for the iPhone 5C from its assemblers in Asia, according to the Wall Street Journal's Ian Sherr. It turns out that customers are not buying the conspicuously cheaper handset.

As we saw on Monday, the iPhone 5S is indeed an incredible feat of industrial design, but it is also a high-end aspirational product. This is why the flagship iPhone is outselling the "cheaper" 5C two to one. It should be clear now that the 5C's pricing was far off the mark.

Apple is one of just two companies that makes profits in the smartphone industry -- 60% of the market's profits, actually. Especially in the cheaper segments of mature markets like the US, Samsung (OTCMKTS:SSNLF) and other handset makers employing Google's (NASDAQ:GOOG) Android platform outsell Apple at a lower margin. This is even more pronounced in emerging markets countries where analysts expect the most pronounced growth in the smartphone market. In India, the iPhone was priced so far out of most people's reach that even the Microsoft (NASDAQ:MSFT) Windows Phone outsells Apple there.

Apple investors were understandably scared that the high-end market is already saturated with iOS devices, and that Apple will miss out on growth, especially in countries where mobile carriers don't usually subsidize the cost of a phone. When Apple revealed that its notion of "affordable" is still not so cheap, the stock fell about 3%.

The newest batch of phones also went on sale in China and the US simultaneously. But customers in China still aren't biting. The iPhone remains a luxury product for the nouveau riche. The gold iPhone 5S was the popular one there, especially with the tuhao jin (which means "gold of the uncouth wealthy" or "like Elvis, you have money and no idea how to spend it with class").

So Apple is cutting orders by about one-fifth or one-third, according to the Wall Street Journal; one supplier said that orders were cut in half. The assembly plants in China are even cancelling plans to hire more employees. The article also said that Wal-Mart (NYSE:WMT) and China Telecom (NYSE:CHA) are already starting to discount it. And unlike the 5S, consumers have no trouble getting a 5C without any delay.

I should point out that the 5C was very well-reviewed. It's a nice phone, but it's not as nice as the "real" iPhone. Apple just missed the sweet spot on pricing. However, it hasn't even been two months since Apple bifurcated its phone customers. Early adopters won't settle for the colorful, but less spec-heavy phone. But when holiday season rolls around, that might change.

Twitter: @vincent_trivett
< Previous
  • 1
Next >
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Featured Videos