Since the death of Steve Jobs just over two years ago, it is difficult to look at new Apple (NASDAQ: AAPL) products without asking, “What would Steve do?” Never has this been more apparent than with the iPhone 5c.
Originally introduced as an entry-model iPhone and a budget iPhone, it has since seen lackluster sales and has achieved an almost embarrassing, pariah status. No one wants to be seen with the plastic-backed 5c, especially when for just $100 more, one can have the feature-packed iPhone 5s.
Apple Releases Quarterly Figures
Earlier this week Apple released its financial results for the fourth quarter of fiscal 2013, and for the most part, the news was positive and as expected. They reported $7.5 billion in profit on $37.5 billion in revenue, compared to $8.2 billion in profit and $36 billion in revenue in the fourth quarter of 2012. This beat expectations from last quarter, which predicted revenue fourth quarter revenue of $37 billion.
The mediocre Apple quarterly numbers provoked some discouraged investors to cash in on recent gains in the stock, which fell 5% at one point in after-hours on Monday. Tuesday’s trading saw Apple fall 13.20, closing at 516.68, a decline of 2.49%.
In the fourth quarter, Apple sold 33.8 million iPhones, compared to 26.9 million for the same quarter in 2012, and they expect increased sales going into the holiday season. However, profit margins were down 3%, from 40% to 37% from the previous year. That said, sales of the iPhone product alone are still higher than the entire product line of Microsoft (NASDAQ: MSFT).
What Are the Sales Numbers for the iPhone 5c?
Apple has been very careful to shield sales numbers for the 5c, only releasing sales figures for the entire iPhone product line, which also includes the 5 and the 4s. Furthermore, the 5c was the first iPhone in its history not to sell out on release day. Localytics, a marketing platform for mobile apps, calculates that the 5s easily outsold the 5c in every single market since their launch on September 20th. Online, Apple says there is a three-week wait for the 5s whereas the 5c ships in 24 hours, and the 5c is in stock at most, if not all major retailers.
Tech analyst estimations are that the 5s is outselling the 5c by a factor of three to one. The fact that Apple cut production orders for the iPhone 5c just a month after its launch is another sign that all is not well in Cupertino.
During Monday’s fiscal fourth-quarter earnings call, CEO Tim Cook clearly stated that the iPhone 5c was never meant to be a budget phone. On Monday, Cook told investors, “If you look at what we’ve done, we’re selling the iPhone 4s as our entry offer.”
Moving along, while diverting questions about iPhone 5c sales, he said, “We sell the iPhone 5c as the mid-tier and the 5s. Our goal is to have growth across the iPhone, but we want each of those categories to grow as compared to what we were doing previously. If you look at the total that we're making in the low-end and mid-tier and high-end, the sum there, we'd like to grow in each one of those. We're really pleased that we did that.”
Sales overseas has also mirrored sales in the United States. Sales in Russia and China, two countries with populations that tend to prefer lower-priced phones, have also been flat, with customers preferring to shell out the small premium for the 5s.
Who Buys the 5c?
Since its formal announcement on September 10th, many pundits have had a difficult time determining for which market the iPhone 5c was geared. Was it geared for teenagers? The budget shopper? Well, at $549 off-contact ($99 with a contract), it is only $100 cheaper than the iPhone 5s, which was announced the same day. History shows us that the American public is able and more than willing to shell out the expense for the newest iPhone.
Featurewise, the 5s trumps the 5c in almost every way. The 5s sports the faster A7 chip while the 5c keeps the A6, the same chip in last year's iPhone 5. The 5s also sports a fun new fingerprint scanner, along with a better, enhanced iSight camera.
The 5s also comes in three new colors — silver, gold, and space gray — which look sleek and have that distinctive modern look that Apple has made famous. The 5c debuted with new colors, which are green, blue, yellow, pink, and white, as well as cases in the above colors, along with a black case. So, for the colorfully inclined, you can mix and match your phone and case (at $29 a case), and come up with one of 30 different color combinations. Is this enough to sway you to buy the 5c? Nope, didn’t think so.
So, What Does the Future Hold for the iPhone 5c?
Apple’s fundamental problem is its high price point. Both the domestic and international market are seeing low-cost, high-quality smartphones from Samsung, LG, and Sony. This is an issue not only with the iPhone, but across the entire Apple product line, most specifically with the iPad.
The Wall Street Journal reported that Hon Hai Precision Industry Company, one of the primary assembly contractors for the 5c, has seen its orders reduced by a third, and quoted two Hon Hai executives as saying that Apple increased orders for the 5s in the fourth quarter. Is it a pricing issue? Could the iPhone 5c be a success at a much lower price point?
It is likely that the 5c could see success once it is as their entry-level phone, which will happen when Apple releases the next iteration in their iPhone series, expected to be in September 2014. The yet-to-be-named iPhone 6 is rumored to have a larger screen and yet will still be able to be used with only one hand, something that is not easily done with the Samsung Galaxy S4 or HTC One.
Yet, that is still 10 months away, so it will be interesting to see what Apple strategists decide to do with the 5c. It has been revealed that the 5c costs between $173 and $183 to build, including assembly costs, so a price drop is possible. To make serious inroads into the emerging markets, a lower price point would be required.
Any owners of the 5c willing to sing its praises? When choosing between the 5s and the 5c, which did you choose and why?