The early returns are in on Apple's new iPhones and the 5c, the low-priced model, the one everyone expected to be the consumer favorite is languishing. The 5s, the expensive one, is exceeding expected demand.
Economics teaches us that when people have less they will generally spend less. And the data on household income are pretty definitive. It has been headed south for a long time, like over a generation. So it would stand to reason that most consumers would welcome the introduction of a new iPhone from a company that famously overcharges compared to the competition.
It turns out, however, that when it comes to certain devices, or perhaps we should say more accurately, certain personal accessories, consumers want to be seen with the more expensive model. It is not so much that the one really outperforms the other all that much. Or that the design and engineering are any less impressive, but in this economy reputation matters. And most people who can afford or aspire to an Apple product in the first place, want the cache that comes with the more impressive brand model.
It is also probable that a device which has become so central to the existence of most consumers must be both impressive and reliable. When you are conducting much of your life on it, you want such a totemic item to function better than you do. The perception is that you are paying for better quality, even if the differences are probably not discernible to the average texter or tweeter.
There is, finally, the fact that however relatively inexpensive the 5c may appear in the Bay Area or London or Sao Paulo, it still costs a usurious amount in China and other large markets. So the implication is that Apple still hasnt figured out how to do cheap. That may be ok for now, but might not be forever. And in the meantime, it has gotten confirmation that cost is no object when fashion and function meet. JL
Clare Jim and Paul Carsten report in Reuters:
Apple Inc is cutting production orders for its plastic-backed iPhone 5C a month after launch, a source familiar with its supply chain said on Wednesday, fueling speculation the cheaper model of its main gadget may have been priced too high.
Apple has asked one of its largest suppliers to increase production of the top-tier 5S, which went on sale at the same time, the Wall Street Journal reported. said. Analyst said this allayed concerns that the cheaper 5C will eat into premium sales and erode margins. Apple has told manufacturers it will reduce orders for the 5c smartphone in the final three months of the year, the source told Reuters. The company added the 5C to the lineup in September along with the flagship iPhone 5S. Pegatron Corp, which assembles many of Apple's iPhone 5Cs, had seen orders reduced by less than 20 percent, said the source, who asked not to be identified because the information is sensitive. Hon Hai Precision Industry Co another major assembly contractor for the 5C, had its orders for the same period reduced by a third, the Wall Street Journal reported. But at the same time, Apple raised orders for the 5S in the fourth quarter, the newspaper said, quoting two Hon Hai executives. Analysts said the decision by consumers to spend more on the pricier 5S benefits Apple. The company's shares rose on Wednesday, touching a one-month high above $502. Canaccord Genuity analyst Michael Walkley estimated that the iPhone 5S is outselling 5C by 2.5 times to 1. Canaccord Genuity's "survey work indicates a significantly higher sell-through mix of iPhone 5s versus 5c that should benefit near-term Average Selling Prices and margins," Walkley said. In the United States, the 5C is $100 cheaper than the premium 5S, which starts at $649 for the 16 GB model. Spokespersons at Pegatron, Hon Hai and Apple declined to comment. Analysts and Apple executives have cautioned against reading too much into supply chain adjustments, which are common in the fast-moving electronics industry. Investors will get some idea of the demand for the two phones when Apple reports its fiscal fourth quarter results later this month. But the iPhones numbers from July-September will include sales of only a month of the new models. HOLIDAY QUARTER BOOST Apple is expected to sell 33 million to 36 million iPhones in its fiscal fourth quarter, rising to over 50 million in the typically strong holiday quarter, which will mark the first full quarter of sales of the new iPhones. The holiday quarter may also feature a new lineup of iPads. Next week, Apple is expected to introduce a updated version of the tablets that compete with Amazon.com Inc's Kindle Fire and tablets made by Samsung Electronics. Apple has come under pressure over the past year to bolster sales of its iPhones and iPads and defend its market share against rivals that are rapidly raising capabilities and lowering prices. The reception for the 5c has been lukewarm in China, which Chief Executive Tim Cook has identified as one of Apple's most important markets. Some local bloggers say the price difference between the 5C and 5S is too narrow. The price difference could widen next year as Apple is known for cutting prices of older models to drive volume. "We’re not especially concerned with 5C order cuts at this point because they appear to be offset by strong demand and increased production for the 5S, said Brian Colello, analyst with Morningstar said. "As far as emerging markets, the 5C is simply not cheap enough to gain traction with customers that can buy $150 Android devices." Previously, Apple had said sales for the 5S and 5C in the first three days of their launch in September totalled 9 million, and that demand for the 5S exceeded initial supplies. It did not give separate figures for the 5C and 5S. Prudential, which does not own Apple shares, forecasts assemblers will ship around 23 million 5C units in the final three months of this year and 10 million in the first three months of next year.
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