Wednesday, October 16, 2013

Apple cuts iPhone 5c orders, sharply

Apple has sharply reduced its orders for the iPhone 5c, its new lower-cost iPhone model, sources told the Wall Street Journal on Thursday.

According to the report, both of the 5c's two assemblers, Pegatron, which assembles about 2/3 of the devices, and Hon Hai Precision Industry, trading (and better known) as Foxconn Technology Group, have been told that 5c orders are being cut. According to people familiar with the situation, Pegatron was told the order would be cut by less than 20 percent, while Hon Hai was told the order would be slashed by a third.

Meanwhile, an unknown component supplier added its two cents, saying that it was notified that the order for iPhone 5c parts would be cut by half.

When the iPhone 5c was first rumored, analysts and pundits thought Apple was trying to grab budget phone market share away from low-cost Android devices, which have found emerging markets and other areas where price is a primary concern to be places where they can dominate. It was even rumored that the iPhone 5c might retail for $350 -- unsubsidized, mind you -- but instead the 5c turned out to have a $549 cost sans contract.

That pricing structure is the same that Apple used to use for its year-old model, which -- before this year -- it sold as a lower-cost model to its flagship device. The iPhone 5s continues to sell at $649 or more, unsubsidized.

It's unclear if Apple thought the addition of a new, colorful second phone to its iPhone lineup would spur sales, despite maintaining the price structure of prior years. It hasn't really turned out that way.

The iPhone 5c is basically an iPhone 5 with a colorful plastic case, although internal changes have been made to make it more like the 5s for components that do not affect performance and functionality. The device, for example, does not sport the 5s' Touch ID fingerprint sensor. Nor does it have the A7 processor.

Given that, sales numbers along the lines of year-old handsets might be a better comparison.

Marvin Lo, an analyst at Mizuho Securities, pointed out that the $100 price difference between the 5s and 5c makes the choice easy for consumers in developed nations. He said:
[Apple's] high price point in China makes it difficult for the company to compete in the world's largest mobile market by subscribers. Customers in more-developed markets like the U.S. and Hong Kong also prefer buying the iPhone 5S because of the little pricing difference between the two new iPhones.
While Apple has cut 5c orders, all is not bad news for shareholders. Apple has instead increased this quarter's orders for the iPhone 5S, two Hon Hai executives said.

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