The diverging fates of Apple’s iPhone 5s and 5c have been widely reported, and our latest channel checks confirm that Apple indeed has cut back 5c production by 35% and increased 5s production by 75%.
The disappointing performance of the 5c can be attributed to two factors. First, Apple is a profit-driven company, and decided to raise their price in order to hit its profit target when Chinese carriers cut their subsidies on the iPhone 5c. The selling price of the phone is determined by material cost, target profit margin, and subsidy. The company could have sold the 5c at a much lower price (as the market expected); however, Chinese carriers were aggressively gaining new subscribers through device subsidies during Golden Week (first week of October). If Chinese carriers allocated a higher subsidy to new iPhone 5c subscribers, they would have less to subsidize other brands’ devices. Perhaps Apple miscalculated the launch timing, considering they were aiming at the China market.
Second, the market’s expectation of what the iPhone 5c would be was very different from how Apple wants to position itself. It was not Apple’s intention to develop a product targeting the “low-cost” smartphone segment. However, rumors about iPhone 5c being “cheap” were circulating as early as Q3 2012. The fact that the iPhone 5c is nearly identical to the iPhone 5 – and is not cheap – disappointed some consumers.
While the fate of the iPhone 5c is still to be determined, the iPhone 5s is doing quite well, indicating that Apple still has a strong hardcore base for its premium devices. It is worth mentioning that iPhone 5 production is scheduled to end Q3 2013; iPhone 4s’s end of life is still to be determined, as it still receives orders of 1 to 2 million units per month and only recently started selling in Indonesia.
Perhaps Apple could have avoided the effort it took to develop the iPhone 5c, and just continued selling the two-year old iPhone 4 at a lower price to address the mid-range segment.