Sunday, October 20, 2013

iPhone 5c - A sleeper hit or a mispriced flop?



Tim Cook's big reveal on September 10th, left a lot of us with mixed feelings. Amidst all the rumours, analysts and tech enthusiasts had expected Apple to announce two new models of their next generation phones. One, a premium, top of the line flagship phone, priced similar to last years iphone 5. And then a lower tier model aimed at emerging markets and budget conscious consumers.

On September 10th Apple announced 5c, a not so cheap, "Unapologetically Plastic" and colorful avatar of iPhone. With a new hard shell case, it has almost similar internals as last years iPhone 5, and is priced just $100 lower with contract than the more expensive and better built 5s.

Apple was quick to point out that 5c was no means meant to be a cheaper alternative. In all its marketing promos, Apple highlights design, fun and style, and never once mentions prices and features. In fact, the 5c, unlocked starts at a steep $549.



Apple recently announced that they had a record opening weekend, selling 9 Million iPhones.
This is quite fascinating, since it's 80% higher than last year's launch (5 Million). A key driver for this incredible figure is the first time, simultaneous launch in China. In fact according to Asymco, if you include last year's first weekend sales in China, the growth is actually a more modest but still strong 28%.

I was curious what population of Apple's customer segment would be interested in a cheaper looking phone with last year's specs. Would $100 lure them away from the iPhone 5s, which has far better build quality, a 64bit next generation processor, better camera and most importantly, the revolutionary touch-id sensor. Rather than cannibalizing their own product, Apple's play seems to be more towards attracting Android and first time buyers into their own ecosystem, meanwhile maintaining their high profit margins. But have they priced it too high?

Apple did not reveal the split between the two models, however initial reports suggest 5s outselling the 5c 2:1. Due to the lack of public data, I asked Google Trends, what people were searching for. And right now, iPhone 5s trumps 5c by 2.5-3:1. It's obviously unscientific to relate sales volumes with search queries and it needs to be taken with caution. However, it does reflect consumer interests around these two products.



Recent news suggests retailers like Walmart and Best Buy have already started discounting  iPhone 5c prices by $50 (via gift cards) to counter disappointing 5c sales. Consumer Research firm NDP also reported Apple cutting back 5c production by 35% and increasing 5s production by 5s to meet demand.

Regardless of how this plays out, Apple is all set to have another record quarter. They will sell millions of new iPhones. Apple, recently in a regulatory filing, also said that its sales and gross margin for the quarter ending this month will be at the high end of its forecast of $34-$37 billion in revenue and gross margin of 36 to 37 percent. As a tech enthusiast, I am just excited to see what they have in store for us in their big reveal this October 22. New iPads, macbook pros, and maybe something magical that you can wear on your wrist.


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