

Apple cuts 5C orders due to weak demand - loso
http://www.cnbc.com/id/101116165

======
ma2rten
> At the time of the 5C's launch, tech-watchers said the handset was designed
> to beat off Apple's rivals in fast-growing emerging markets.

I am staying in Thailand, which may be one of those emerging markets. I will
comment on the situation in Thailand, but the situation in other countries may
be similar.

The average salary in Thailand is about $350. But that does not make Thailand
a price-sensitive market for high-end smartphones. If you want a cheap phone,
chinese iPhones copies are readily available starting from $40 on markets and
even malls. The people who do buy a real iPhone don't generally buy it for
it's features, hardware or apps. They buy because they have money and want to
show it. You also see a lot of German luxury cars on street, despite the fact
that these taxed at 200%. I heard that if you don't you don't have a Mercedes
in Thailand, people don't want to do business with you because they think you
are insolvent. A cheaper plastic version of the iPhone, isn't going to cut it
in these markets. Rather a more expensive Gold version. Gold has a special
meaning for Asians, especially Chinese, who form most of the elite in
Thailand.

To a lesser extent I think that also applies Western countries. My former
boss, who drove a Porsche, commented on the iPhone 4s launch, that it didn't
matter what Apple's latest killer-feature would be. People (including himself)
will always want to have the latest iPhone.

~~~
devx
But that's mainly a niche market - a market of people who wouldn't care even
if the iPhone is $2,000.

Apple may very well continue to sell iPhones _only_ to that market, but they
will _definitely_ lose market share. And I think Apple, at the very least,
wants some _compromise_ between high-end/quality and market share, and aren't
purely focused on high-end, no matter what they say in public.

They know that if their market is 5 percent of smartphones (which is starting
to look that way in a few years, if they change nothing about their strategy)
they will start losing the developers. iOS won't be the platform to get apps
first, or the most (already isn't here). And I think Apple will try to avoid
that as much as possible (as futile as I think that will be).

~~~
obiterdictum
I think what GP is saying is that in emerging markets, or at least in
Thailand, there is no "compromise" market segment (and it's not going to
appear regardless how much Apple "want" it). Normal people get ultra cheap
phones, rich people get high-end iPhones, which is why 5c is a miss.

------
alecsmart1
If someone can afford a $549 phone, they most probably can afford a $649
phone. At this price range, it's not really a rational decision. It's how
desirable the product is (which Apple is very good at projecting). So the
customer might as well go all the way and get the top of the line phone. Well
I would. Imagine spending $549 and then your friends saying "Oh, but its not
5S".

~~~
fijter
Indeed, the 5c is just a bad deal; You get the iPhone 5, a model that would've
been reduced in price anyway if they retained it, with no big/significant
changes other than a plastic shell (downgrade if you ask me). Thats fine if
they'd set the price to say $399, but at $549 you would be mad not to lay down
another $100 for the 5s.

~~~
pearjuice
Earlier at Apple HQ:

"Listen. Let's put one mid tier phone on the market. Make it expensive but not
necessarily any better than its predecessor. Then, we also release a phone
which is actually an improvement. Our flagship, if you will. The trick is in
making the mid tier marginally cheaper than the flagship. This will make the
step to the flagship a lot smaller and as the mid tier is basically its
predecessor with a few tweaks and a new housing, the average Joe will not even
complain. We are getting rid of the old iPhone fives, improving sales for the
more expensive variant and it doesn't cost us a thing!"

~~~
RBerenguel
Actually I've read this (in a more elaborate version) in either Priceless or
Influence (maybe even some hints in Scientific Advertising). Which are two
very good reads if you are in anything related to sales, money or almost
anything else. It's something I've applied many times and works wonders.

~~~
pearjuice
Actual content would be great!

~~~
RBerenguel
I didn't have time to grab the actual books. You mean chapter numbers, quotes
or the general idea in longer form?

------
antimagic
Good grief, talk about burying the lede. The 5C has lower-than-expected demand
because the 5S has been wildly successful, even with it's higher price point
(evidence for this: Apple announcing that they exceeded expected sales _for
all models of iPhone_ during the first month of sales, and that despite the
fact that the 5S is still supply-constrained).

Edit - Here's a better example of how the same facts can be reported:
[http://www.theverge.com/2013/10/16/4843902/apple-said-to-
be-...](http://www.theverge.com/2013/10/16/4843902/apple-said-to-be-trimming-
iphone-5c-production-while-increasing-5s)

~~~
mehwoot
I think "exceeded expected" is a bit of marketing speak here. Did the sales
really exceed what they expected? If so, they must be pretty bad at
forecasting how much of their own stock they sell, time and time again.

And if the 5C was one of the models that exceeded expected sales, why would
they be notifying their suppliers of cuts? Wouldn't they be saying "Good news,
sales are better than we thought".

The exceeded expectations is completely meaningless. It clearly didn't.

~~~
antimagic
Just to be clear, Apple didn't announce that they exceeded expectations, at
least not to my knowledge. They simply (and objectively) announced how many
sales they had made, which beat _analysts '_ expectations by a large margin.

~~~
mehwoot
Right, that would make more sense.

------
piog342
I kept reading before launch about the $100 phone Apple was launching and was
excited. But to my disappoint I later realised it's $100 + ridiculous contract
(apparently the notion of contract free phones doesn't exist in the US)

I think if Apple launched a "budget" phone it would destroy much of the
Android market. Maybe it would damage their brand though, who knows.

~~~
smsm42
Contract-free phones do exist. But if you want a brand new expensive phone
without paying full price and without a contract, it better be your birthday
because otherwise I don't see who's going to pay the difference.

>>> I think if Apple launched a "budget" phone it would destroy much of the
Android market.

Not likely. Apple core customers would shun it because it's not fancy enough,
and Android core customers would shun it because it's Apple-built jail and
because they want the apps they're used to. It's like saying if Windows were a
bit cheaper Linux wouldn't exist. Not likely.

~~~
piog342
In the UK you can buy a good spec Android phone without contract for £100 (one
of the Huawei models).

I personally wouldn't shun an iPhone at a similar price point (I find them
more polished but too expensive for my budget), perhaps I'm an irregular
customer though.

~~~
smsm42
iPhone 5S base cost is estimated around $200-$300[1], so iPhone for £100
should be either seriously inferior model or seriously subsidized. Apple does
not need to subsidize it - they sell fine as is. So either carrier subsidizes
it and gets their money back in contract fees, or you are paying the cost plus
margins of all the middlemen (unless you manage to buy it straight from the
assembly line, which you can't).

[1] [http://www.asymco.com/2012/02/22/the-iphone-manufacturing-
co...](http://www.asymco.com/2012/02/22/the-iphone-manufacturing-cost-
structure/)

------
intelliot
The 5c isn't hugely less expensive than the 5s (it only looks like half the
price due to carrier subsidies). So this doesn't surprise me -- if you're
going to locked into a contract, most people are better off ponying up the
$100 -- much less than the cost of the cellular service. So consumers are
rightly choosing the 5s.

------
felixmar
Is Apple not concerned about losing developer momentum? Paid apps are on the
way down. Market share is becoming more important than ever. Only in the US
will a large share of the population pay $600+ for a phone. Strong iPad sales
will buy Apple some time but i suspect that more and more developers outside
the US will go Android first.

~~~
adventured
Android is a monopoly. The network effect will get worse and worse and worse.
Two or three years from now, Apple will be lucky to have 7% of the global
smart phone market. The only thing left is for the iPhone to be squeezed into
an ever smaller corner, as Windows did to them last time. Tech markets like
these are almost always winner take 95%.

Over the next three years, Android will take over 80% of the tablet market as
well. The iPad will potentially suffer an even worse fate than the iPhone
market share wise, because the subsidies aren't going to be there for much of
the tablet market. The iPad will be competing with $125 and $200 tablets that
are 90% as good at half the price. The outcome has always been obvious.

------
helipad
"Apple began selling it's the new low-price option last month in 11 markets" –
low price?

~~~
ygra
Compared to the 5s.

------
antr
Apple's multi-million dollar trial and error pricing exercise.

The Monday morning quarterback in me will now say that "in order to
differentiate an excellent product (5C) with a premium product (5S) is to at
least sell the 5C under the €400 level. At a €100 price delta users are
'clearly' price elastic"

If margins of the 5C at a sub-€400 price are not those Apple expects from its
products don't build the 5C.

~~~
danmaz74
Are there really quarterbacks who reason in euro??? ;)

~~~
antr
only those who use the euro as their reserve currency :-p

I was looking at iPhone prices on the German Apple site, hence the euro
explanation. The US Apple site is a pain if you want to compare unsubsidised
iPhone prices.

~~~
danmaz74
I was just kidding of course - moreover I live in Italy ;)

------
xux
It's no surprise that Apple also announced that it's hiring Angela Ahrenditz,
CEO of Burberry. She guided the company from a cheap image crisis to a
successful luxury brand.

I think Tim Cook want her to do the same to Apple. The iPhone needs to be seen
as a luxury brand.

~~~
vacri
Weren't they already a luxury brand? Aren't they diluting that perception by
putting out a plastic phone? They haven't done a plastic case for anything in
years.

~~~
adventured
Yes, absolutely. The iPhone IS the luxury brand of smart phones, and always
has been. There are only two possible outcomes: they lose that status with
lame gimmicks like the iPhone 5C, or maintain it by sticking to what Apple's
brand stands for despite the risk of losing more market share.

------
Aardwolf
Can someone please explain me something that I don't understand?

I'm quite sure that Apple has smart economists. So why do they call something
that costs 15% less than something expensive "low price"?

Thanks.

------
abdophoto
The question isn't whether the 5c is selling less then the 5s. It's whether
the 5c is selling more than the 5 would. Too early to ask.

------
ArekDymalski
I wonder if all of this was just a clever trick to provide bigger contrast and
thus justification for buying the more expensive model.

------
pearjuice
If it were actually cheap and sold at a price with very little to no profit
and was simply used as a tool by Apple to gain market share, it could have
worked out very well. But no, they thought they could resell old components
with little added extra but an increased version number to the masses. The
reality distortion field has its limits.

~~~
simonh
iPhone sales are stronger than ever before. They're selling the high margin,
high end models hand over fist. And the answer to solving this terrible
predicament they find themselves in is to sell the lower end phones at cost?

~~~
pavlov
Increasing margins and profits are not a predictor of success in this
business:

 _' 'We are experiencing marked improvements in our gross margins as a result
of lower component costs and strong sales of the computers we introduced a
year ago,'' John Sculley, Apple's chairman and chief executive, said in a
statement. ''At the same time, we continue to focus on managing the growth in
our operating expenses.''_

[http://www.nytimes.com/1990/04/19/business/company-
earnings-...](http://www.nytimes.com/1990/04/19/business/company-earnings-
apple-s-profits-rebound-on-strong-foreign-sales.html)

------
jbverschoor
Well for $100 I'd rather get the 5S. It would be a whole different story if
the difference was 200-250

------
Theodores
The 5C does not have to sell. It purely has to be the 'other' choice instead
of Android etc. being the 'other' choice. It is there to make the deluxe 5S
seem a 'bargain', that is all. This makes purchasing the 5S a lot easier for
the customer, psychologically.

As for Apple cutting orders due to weak demand, they simply placed a large
initial order with their suppliers to get a better price. They probably told
them it was going to sell like hot cakes when all along they only needed a
modest quantity. They now go back to them and say 'sorry folks we won't be
needing so many for the next order' and the suppliers walk away wishing they
had charged more per unit with the first order.

Note this article is thin on sources and the angle implied - 'weak demand' is
just interpretation.

