Apple Q1 preview: All eyes on iPhone 5C, or '5F' for 'Fail'?

Apple Q1 preview: All eyes on iPhone 5C, or '5F' for 'Fail'?

Summary: Apple's latest earnings report covers the lucrative holiday quarter. Expect strong (maybe record?) profits. But all eyes are on the iPhone 5C, which analysts believe badly flopped.

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TOPICS: Apple, iPhone
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(Image: CNET)

As Apple celebrates the 30th anniversary of the Mac, all eyes are on the runt of the smartphone litter, the iPhone 5C. 

The Cupertino, Calif.-based technology company has for the past half-decade enjoyed strong success in the December holiday quarter. Based on the latest round of Wall Street analysts' notes, it's clear that the iPhone remains the star of the show.

With the introduction of a lower-cost device, the iPhone 5C — at the same announcement as the premium iPhone 5S, there was general concern either one could cannibalize the other and affect Apple's overall profits.

And that almost certainly is exactly what happened. Although, the plus side is that it was the iPhone 5C with a lower price point and margins that failed to spark much interest across the globe. But it still leaves Apple with a problem child that needs fixing, or axing.

Wall Street is expecting the technology giant to post earnings of $14.09 per share, on revenue of $57.46 billion for the holiday quarter.

The company's operating margin is expected to be between 36.5 and 37.5 percent, with analysts expecting the figure to fall in the higher end of the scale at 37.3 percent. The expected margin could have been higher had Apple not incentivized newer iPhone, iPad, and Mac sales with free software and upgrades. 

Analysts are nevertheless expecting strong sales across the board due to the festive season, where sales are typically significantly higher.

iPhone 5S to take biggest sales slice

According to average analyst estimates gathered by Fortune, Apple is expected to announce about 55.3 million iPhones sales during the quarter. 

Apple's bread and butter rests on the iPhone's success. The smartphone division still makes up about half the company's total revenue. But analysts remain cautious on the state of affairs from its newer, lower-end smartphone sibling, the iPhone 5C, which reports suggest iPhone 5C production has been pulled back due to weak demand. 

Credit Suisse analysts Kulbinder Garcha et al said in a research note on Thursday that the iPhone 5S could take up as much as 65 percent of all Apple's smartphone sales, leaving about one-third being lower-cost iPhone 5C devices. It falls in line with regional research figures from the U.K. in December suggest the iPhone 5S is outselling the iPhone 5C by at least three-to-one.

Apple historically hasn't broken out sales of its device portfolios, and that isn't expected to change. 

Thanks to the iPhone's further reach into the Chinese market. Thanks to a customer base of more than 760 million in the country, analysts pegged a 15-20 million boost to iPhone sales.

Many (but not all) China Mobile-related builds were at the end of December, and will account for a spike in first quarter sales. Chinese New Year lands a week after the Apple first quarter earnings call, so expect the second quarter to see another significant bump in sales.

Jefferies analyst Peter Misek concurred, adding:

Our recent round of checks indicates the total builds remain unchanged but further mix shift away from the 5C and toward the 5S and 4S. We note that the volatility in the supply chain is particularly high this quarter and depends on which particular [device version] the part is for. We theorize that could be the source of divergent sell-side [first calendar quarter 2013] build plan estimates.

Misek said in the note he believes solid iPhone 5S demand will offset the iPhone 5C's weakness, but in order to shift inventory price cuts are almost inevitable. 

Macs: year-over-year growth expected

Apple is expected to sell about 4.6 million Macs during the quarter, according to Fortune estimates, up by 13 percent year-over-year.

Of course, the holiday sales patch will boost numbers, but the year-over-year increase can be attributable to the decline in first quarter of 2013 sales as a result of the missed iMac deadline. Taking this out of the equation, sales are about flat year-over-year.

iPad in troubled waters?

Meanwhile, just one fiscal quarter after the latest tablet iteration, the iPad Air, was introduced, analysts have concerns about Apple losing ground as the low-end tablet market continues to grow. 

Apple is expected to announce sales of about 24-25 million iPads during the quarter, Fortune reported based on average analyst estimates, up a modest 10 percent year-over-year. In terms of Apple's market share, in spite of the strong sales, average forecasts suggest a drop of a nearly half from the full year of 2012.

Garcha added later:

Within the competitive landscape, we forecast Apple's tablet share at 22 percent in 2014 down from 41 percent in [calendar year] 2012. While we see the tablet market growing to 447 million units by 2017 (nearly twice 2013 estimates) we see most of the incremental growth in the sub $200 [average selling price] segment where Apple is not currently exposed. 

Apple reports its fiscal first quarter earnings after the market closes on Monday. 

Correction: Initial Wall Street estimates were incorrect. They have now been corrected.

Topics: Apple, iPhone

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37 comments
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  • iPhone 5C "fail" is iPhone 5S win: the only purpose of iPhone 5C release ..

    ... was to force buyers to go for more pricey newer iPhone 5S phones -- and this strategy was successful.

    Though, to be fair, iPhone 5C is not really a flop since with significant year over year quantity increase it would result in at least no worse sales that iPhone 4S, which was runner-up model year ago.
    DDERSSS
    • If that was the case, they could have gone the much smarter route

      and never release an iPhone 5C, just gone exclusively with 5S.

      This would have forced buyers to go for the pricier 5S, without wasting a dime on building the 5C.

      And you said Cook was smart.... :)
      William.Farrel
      • What everyone misses

        Is that the 5c isn't a new phone.

        They didn't develope a new phone and spend a shed load of cash... It is 90% a 5 internally.

        If anything they have managed to give a boost to the sales pf their previous model sales (increasing bucks earned on desearch done).

        Everyone seems to agree the 5s has been pretty sucessful, but what you should be conparing the 5c sales to are last years 4s sales, or the year before's 4 sales.
        MarknWill
      • Why a 5C?

        Ok, why a 5C? Plastic case. You may have read of the difficulties, and cost, of tooling a plant to make the metal case of the iPhone 5. Now, Apple wants to replace the iPhone 5 with a 5S, but wants to also offer a 'bridge' phone between the 5, and the 5S. Tooling another line to produce the aluminum case would be very expensive, so they dropped the 5, and introduced the 5C with a better camera, and other internal improvements, and converted the line to produce cases for the 5S. Simple economics of production, nothing more.
        rphunter1242
    • 5C outsells Nokia

      The thing is, if the analysts are right that still puts 5C sales north of 10 million - basically more than all the myriad Nokia Lumia models combined for the quarter. Most manufacturers would kill for a "failure" like the 5C.
      rbgaynor
      • Hope you remember the logic

        When ZDnet again writes about Windows 8 as a failure, it has more share than OSX has just in 1 year. 100 million and counting
        soulxfer@...
        • not a particularly relevant thing

          As Windows 8 is a general purpose computer OS available to any OEM anywhere to put on a computer. Whereas OS X is something you only get if you buy one of the computer models of only one maker.
          Mac_PC_FenceSitter
        • More 'failure' clickbait!

          Many have said Windows 8 was a failure because it didn't revive PC sales like some claimed it would. The slow rise of sales numbers always makes some idiots start yelling "failure" because they just like to use that word. As long as Windows 8 sales are meeting Microsoft's expectations then it's not a failure. If consumers don't care for it particularly that still doesn't make it a failure. There's a lot of grey area between success or failure and I'd hardly think Windows 8 fits either category but falls into a grey area somewhere in the middle. If the economy is soft and consumers are buying other products it doesn't make Windows 8 a failure. It may not be as popular as some anticipated but hardly a failed product.
          Steffen Jobbs
          • Off topic

            Off topic here, but I call an OS that causes potential buyers to NOT buy a new PC because they don't like the OS, a fail. Your mileage may vary.
            rphunter1242
    • But what does Nokia have to do with DDERSSS' statement?

      That the only purpose of iPhone 5C release was to force buyers to go for more pricey newer iPhone 5S phones, so it's fine to have it not sell?

      It makes no sense to do that if you think about it from a business standpoint, no matter how many Lumia models Nokia sold, right?
      William.Farrel
    • Just ZDNet's Spin Machine

      Another day another ZD Net diss of Apple.
      OK readers, Open our eyes, Whether you like iOS or Android, this is ZD's anti Apple spin the've been trying for about a year now, Either it's Google's ad money, or poor journalism, but as a ZD Net reader for 20 years, they used to look at both sides of the story, no matter who the article is about, even when Apple was on their death bed in 1997, the looked at all sides, now that Apple is dominating in some parts, they suck in ZD's eye, thats telling that the millions of ZD readers with iOS devices, the suck too.
      cheydaddy
      • Something else to consider....

        I don't see any coverage of Samsung on ZDNet. The other day I saw on another site that Samsung's earning fell short of analyst estimates. If that were Apple there would be at least one article speculating about Apple's coming demise.
        I wonder what non-coverage is worth these days?
        rfoto
    • I've said this before but...

      I've said this before but, let me say it again as you don't seem to understand how this works... You're an idiot.
      slickjim
  • I doubt they'll breakout numbers between 5S and 5C

    If they follow previous reporting, they'll give a total number for all models, lumped together.

    And that number will be good enough to satisfy anyone interested.
    William.Farrel
    • Doesn't Microsoft lump Surface sales together also?

      Or Amazon, they also lump all kindles together?
      SOCAM
      • So what does MS and Amzon have to do with Apple's sales reporting?

        The comment was in reference to Apple and their iPhone models. I stated -

        "I doubt they'll breakout numbers between 5S and 5C, If they follow previous reporting, they'll give a total number for all models, lumped together".

        So how does how MS or Amazon report their sales figures change what Apple does in their reporting?
        William.Farrel
  • iPhone sales unimpressive in the US

    That what I expect, let's see how China and eventually other markets will help Apple.
    AleMartin
    • Just fin in the US

      I upect they'll do just fine in the US, they've been the top sellers at all the major US carriers since they were released.
      rbgaynor
      • The 5S is still the number 1 selling phone model.

        There is no other phone out there which sells as many units as the iPhone 5S. Period. You have to lump all of the sales of every model from every manufacturer of Android phones together to beat the iPhone 5S sales numbers.

        In my mind, the 5C was a waste of time and resources. If people wanted to buy a plastic phone that's cheaper than an iPhone 5S, they'd look at Samsung, Nokia, or LG. People who buy an iPhone, want the flagship, with all the bells and whistles, and the latest hardware available. I'd bet the 5S is outselling the 5C 10 to 1.
        BillDem
    • Um

      What are you basing that on?
      Rogifan