Apple took the wraps off of the iPhone 5C, a lower cost device targeted at the emerging markets. The addition gives Apple a device designed to take emerging markets momentum away from Android.
The iPhone 5C, one of two iPhone 5 replacements, gives Apple a high-low strategy on pricing. As a result, a low-cost iPhone, which had been rumored and telegraphed, is likely to give Apple more volume. Profit margins may be crimped a bit, but Apple executives said they can segment the market later.
Speaking at Apple's launch event, marketing chief Phil Schiller said via CNET's live blog:
"The iPhone 5C is made with all the incredible technology that customers have loved with the iPhone 5, but there's more, too. It has an incredible new design. One that's more fun, and more colorful than anything we've made before."
Among the key points:
Apple spent a lot of time talking about the construction and options on the phone. Simply put, the iPhone 5C may be a Moto X killer. The larger question is whether the iPhone 5C is low-cost enough to target new markets---either U.S. customers who want phones cheaper than $199 on contract or people in China or India.
Schiller said it was the "most forward thinking phone anyone's ever made." Apple's aim was to create something that was solid and rigid yet plastic. Apple is taking preorders Sept. 13 for Sept. 20 sales.
What's unclear is whether consumers will view the iPhone 5C as cheap or classy. Given the new iPhone 5S colors---space grey, gold and silver---it'll be clear who scrimped on a phone with a two-year contract.
But don't discount the iPhone 5C. Strategically, the device is more important than its higher-end sibling.
Barclays analyst Ben Reitzes said in a research note:
The 5C should help Apple prevent share loss and even regain share vs. Android phones.
That market share tipping point could come should Apple land a deal with China Mobile to offer one or both phones. China Mobile has 700 million subscribers.
China Mobile sells more smartphones than Verizon, AT&T and Sprint combined, according to Stifel Nicolaus analyst Aaron Rakers. He said:
With competition heating up, Apple has fallen to 7th position in smartphone market share in China in C2Q13 according to Gartner. While Apple’s brand image in China remains very strong a number of domestic smartphone manufacturers offering suitable products at compelling price points has resulted in Apple’s fallen share. We believe an iPhone 5C would integrate multimode capabilities that support China Mobile’s network
and be priced at level more palatable for China Mobile than current Apple iPhone products. As a result, we believe an announcement of iPhone acceptance at China Mobile may be coming soon – perhaps as soon as September 11 in conjunction with Apple’s separate event that it will hold in China. As we have written in the past, Apple would likely regain lost market share and realize between $4 - $8 EPS over trailing 12-months post launch.