The mass misunderstanding of the iPhone 5c market
In the past week there have been countless stories run about the alleged production cuts of the iPhone 5c. I say “alleged” because that’s all it is right now. Allegation. And at least one of the analysts (who I shall not name) making this allegation has a very spotty track record on all things Apple.
But let’s assume it’s true. It very well may be. Isn’t it still also true that the iPhone 5s sells for about $100 more than the 5c? And wouldn’t that make it a more profitable phone for Apple to sell? Of course it would. Rhetorical question.
Apple sold 9 million of its new iPhones in the first 3 days of launch in September. That’s a pretty big number, and if more of those were the 5s isn’t this actually a good thing?
Bottom line here: If the majority of your customers want to give you more money for a more expensive (and more profitable product), resulting in a production slowdown for your cheaper product, that’s what I call a high class problem. What's more, if Apple staged the iPhone 5s as the blockbuster fall release, and the iPhone 5c as the long-tail play that follows behind it, then it's an even higher class problem.
To illustrate how well Apple is doing, look at Verizon, who just released Q3 results this morning. Out of 7.6 million smartphone sales for the quarter, the iPhone accounted for 51% of them, which is up from 43% last quarter. Year over year Verizon’s iPhone sales are up 26%.
Apple may very well may have screwed up their pricing strategy. Perhaps there aren’t enough people willing to shell out a ton of cash for what is realistically a one-year old model repackaged in polycarbonate. Maybe Apple should have been more aggressive in hitting a lower price and capturing more market share. Maybe they should have made a netbook too. But when you look at the Verizon numbers (and more carriers are bound to report results over the next few weeks), that's a tough argument to make, at least right now.
Analysts and financial writers like to write shocking headlines. They pick one number, one metric, ignore complexity, ignore the big picture, and make the facts match their narrative. But while Apple has a simple product line, they certainly don't have a simple production line. They have multiple suppliers, and a complex array of moving parts. Calamitous headlines are easy. Doing real analysis on Apple is hard.
All that aside, when you peel the onion even one layer deep isn’t it obvious that, mathematically, given they still sold huge numbers on launch, that profitability is actually climbing?
Apple's first popular iPhone with a 4-inch in-cell display, LTE 4G, and BT 4.0 LE. Fun features include:
- Polycarbonate casings in yellow, green, blue, pink, white
- A6 custom processor
- FaceTime HD camera
- iOS 7 software
Have something to say about this story? Share your comments below! Need help with something else? Submit your question!