iPhone 5c demand worries emerge, but may be misplaced
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.
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.
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