iPhone 5c demand worries emerge, but may be misplaced

iPhone 5c demand worries emerge, but may be misplaced

Summary: Apple cuts iPhone 5c orders, but not by much. Is that so bad? The more Apple's iPhone mix skews to the iPhone 5s over iPhone 5c, the more money it makes with better profit margins.

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Worries are starting to emerge that Apple's iPhone 5c may be facing weaker than expected demand on reports that the company is cutting manufacturing orders.

The Wall Street Journal reported that Apple is cutting orders for the iPhone 5c and speculated that the pricing strategy could be wrong.

On the flip side, analysts see iPhone 5c demand as a mixed blessing since iPhone 5s is a hit that packs better profits. Bottom line: The more Apple's iPhone mix skews to the iPhone 5s over iPhone 5c, the more money it makes with better profit margins.

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Deutsche Bank analyst Chris Whitmore said in a research note:

We believe that iPhone 5S demand is outstripping 5c demand by a significant amount (75%/25%). As a result, both ASPs and margins should benefit from the strong mix within the iPhone product lineup.

Barclays analyst Kirk Yang questioned the iPhone 5c's staying power. His outlook for Hon Hai and Pegatron went like this:

We believe sales momentum should continue into October and November but are cautious afterwards on concerns from supply chain, especially we believe because the iPhone 5c build plans have already been cut recently. We would suggest that investors shift away from most of Apple's Asia supply chain amid any share price strength as there might be a product vacuum in 1H14 before a possible larger iPhone 6 is introduced in 3Q14.

Is the iPhone 5c a flop? Probably not. The data points are mixed to say the least.

Consider:

  • The Journal noted that Pegatron was told orders for the iPhone 5c would be cut by less than 20 percent. Hon Hai was told orders would be cut by a third. Those percentages may indicate inventory tweaking more than a dramatic slowdown in demand. Keep in mind Apple can make iPhone 5c devices easier since they are reskinned iPhone 5 smartphones.
  • Apple is navigating somewhat bizarre expectations. Wall Street wanted a cheaper iPhone 5c, $99 under a two-year contract, to tackle emerging markets. Yet if Apple really went commodity device, analysts would scream about margins.
  • Anecdotally, it's difficult to spot an iPhone 5c in the wild. Spotting an iPhone 5c at a train station is easier than finding a colorful Nokia Lumia, but not by too much.
  • Colors may be overrated. The iPhone 5c has color and theoretically should appeal to tweens and kids. The kicker: My daughter and her friends don't want to be locked into a color for two years.

In any case, it's too early to go crazy and start calling the iPhone 5c a flop. A deal with China Mobile could change the iPhone 5c fortunes and demand picture in a hurry.

Also: 

Topics: iPhone, Apple, Smartphones

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46 comments
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  • Wasn't the whole idea behind the 5c larger profit margins?

    "The more Apple's iPhone mix skews to the iPhone 5s over iPhone 5c, the more money it makes with better profit margins."

    Speculation was the 5c was less expensive to make than the 5s and therefore it's profit margin was larger. Without this larger profit margin what is the purpose of the 5c? It's certainly not to be a low cost phone.
    ye
    • iPhone 5c' profits are larger comparing to iPhone 5, not iPhone 5S

      The point is that plastic enclosure is cheaper to make than aluminum's one. Also, by taking iPhone 5 down this time, Apple pushes buyers to spend money getting aluminum phone, which is iPhone 5s.

      So iPhone 5c does great job on both fronts.
      DDERSSS
      • Your statement doesn't make sense.

        The iPhone 5s has the same chassis as the iPhone 5. Therefore, based on chassis, the two should be identical.
        ye
        • What does not make sense is when you think that plastic and aluminium ...

          ... enclosure costs the same.
          DDERSSS
          • I do? How did you reach that conclusion?

            nt
            ye
          • Same

            No, the cost of the plastic case is way less.
            rphunter1242
        • You seem to believe the iPhone 5 and 5c have the same chassis

          Effectively speaking, that's impossible. With the aluminum iPhone, the aluminum frame IS the chassis. It was also, still, part of the antenna system. With the plastic body you lose both the more rigid frame AND the antenna. It's like taking your Ford King Ranch pickup truck and turning it into a unibody model. Sure, it has the same drivetrain, but it just isn't the same truck any more.
          Vulpinemac
          • I do?

            Then why is it I wrote:

            "The iPhone 5s has the same chassis as the iPhone 5."

            Note the "S" on the end there. No "C" to be found.
            ye
          • Not the same

            Take a look at what is in the 5 as opposed to the 5S. No single component is the same. Yes, the CASE it the same, everything in it is different, just like the 4 and 4S were the same, externally, but very different inside.
            rphunter1242
        • Same?

          Not even close. Check out the iFixit teardown.
          rphunter1242
      • Sorry Dennis, I disagree.

        I'm with ye and others on this in thinking that the iPhone 5c ISN'T doing a good job at what Apple was hoping to accomplish with it.

        I'm not saying it's a bad phone, that plastic makes it somehow junk, instead saying that there was a reason it was released, and that was with the hopes it would sell more at a larger profit margin.

        What I'm not sure is how you concluded that it cost less to manufacture the aluminum back for iPhone 5S, then it would for the identical back for the standard iPhone 5
        William.Farrel
        • We can't conclude if the iPhone 5c is or is not living up to expectations.

          At least Apple's expectations as I don't recall Apple having said what the purpose of the iPhone 5c was supposed to be. All we have is third party speculation.
          ye
        • It would sell

          at a higher profit than a iPhone 5 at the same price, which is what Apple has done until now, the previous generation is offered at a discount, whilst the current generation takes the expensive slot. Using plastic to replace the aluminium case of the iPhone 5 means it is cheaper to produce and therefore makes a bigger profit than continuing to sell the iPhone 5 at the same discounted price.

          That said, it is simply too expensive for what it is, it is last years technology in a colourful case, but still at a premium price. Whilst you have Android and WP devices for a couple of hundred bucks, the iPhone 5c starts at $812 over here (Germany) , whilst the iPhone 5s starts at $948. That means that the "cheaper" iPhone is considerably more expensive than the high end of the competition, such as the Galaxy 4S ($542.34), htc One ($675) and Nokia Lumia 925 ($530).

          That makes the 5c a very expensive proposition, compared to the competition. It isn't really a surprise that people who haven't already bought into the Apple way are looking at the cheaper alternatives, whilst those that have already bought into the Apple way will splash out that little bit extra to get a phone that is of equal or better quality than the one they are replacing.
          wright_is
      • iPhone updates just cash grabs

        Updates are really no reason to buy a new iPhone as I doubt a new color is worth $500 +. I maintain the Z30 is the best grown up touch screen option right now. Go BlackBerry. Will actually make life easier, more so than iPhone color updates!
        HenselM
      • The iPhone 5C is a bust

        Apple should just have keep selling the iPhone 5 at a discounted rate. Maybe in only one color with the lowest storage capacity. Just like they did with their previous version.

        Now, they will have to write off a bunch of unsold inventory and I'm sure they will pay for ramp up manufacturing costs as well. Both of which wouldn't have happened if they just kept on selling the old iPhone 5.
        laequis
        • A bust?

          Last quarter, total sales of all types of Lumia phones was 5.6 million. In the first few days, sales of 5c iPhones totalled almost 3 million. So, the sales of one iPhone in a few days was half that of all Lumias phones in 3 months. And you want to call that a bust?

          5c sales might not be as good as hoped by Apple, but they are hardly a bust!
          1,2,3
          • Keep things in perspective

            Nokia sales of Lumias are a big improvement over their previous sales. They are closing in on 10 million per quarter now.

            I've read that both the iPhone4 and iPhone4s outsold the iPhone5 each quarter. Comparitavely speaking it doesn't look like the 5C is as popular as what it is replacing, but that may not matter if the 5S is taking up the slack. I'm sure Apple is grinning all the way to the bank regardless if overall the combined sales of iPhones continues to grow.
            Emacho
    • Profit margin.

      I don't think the 5C was intended to boost profit margins at all. It was intended to replace the 5 so that the line for making the aluminum bodies for 5S would be able to make enough for demand without adding a new production line to support two phones with the same, rather difficult to manufacture aluminum case. This saves production costs, and allows Apple to concentrate the aluminum case on only the 5S, which still having a 'lower tier' product for the market, at a lower customer cost. This seems to be a really smart way to do things, and gives Apple almost a year to either tool a new line, or to find another case material/process for the next iPhone model for 2014. Win-win for Apple.
      rphunter1242
      • Profit Margin

        But selling the iPhone 5 in a cheaper, plastic case means a higher profit than carrying on selling it in an aluminium case.
        wright_is
    • I never thought the 5C was a good idea.

      One of the things I've always liked about iPhones is that they're not pudgy blocks of cheap plastic. In my mind, the only reason somebody might want cheap plastic is if the phone were massively cheaper, which it isn't. Also, people can already pick a different color by buying a cover/case. This lets them change the color as often as they like. The whole idea of the 5C just made no sense to me. So, I'm not the least bit surprised that it isn't selling well. They should have spent those resources improving the hardware of the 5S instead of making a plastic version.
      BillDem