Wall Street View the iPhone 5c as Too Pricey to Capture Emerging Markets

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Apple unveiled two new iPhones for the first time on Tuesday — a high-end iPhone 5s with cutting-edge technology including a fingerprint sensor, and the 5c, which starts at $99 with a two-year contract but costs $549 without.

While the gadgets received fair review from the media,  the new iPhones got panned by Wall Street on Wednesday as investors decried one model for being too costly for emerging markets such as China, and dismissed the other model as lacking enough game-changing features.

According to analysts, the world’s most valuable technology company missed an opportunity to introduce a low-end smartphone to drive sales in Asia, where Samsung Electronics and China’s Huawei have a wide lead over Apple.

All these was reflected on Apple shares which fell on Wednesday by $26.93 ( 5.4%), to $467.71 on concerns the company priced its new iPhone 5c too high to grab enough of the fast-growing emerging market smartphone sector.

Apple has lost ground to Samsung and other rivals that make cheaper smartphones based on Google’s Android operating system. This is especially true in faster-growing emerging and developing countries such as China, Brazil and India, where consumers typically buy a phone without a contract and sign up to prepaid monthly wireless plans.

For example, the plastic iPhone 5c will sell for 4,488 yuan – more than the average monthly urban income in China, and about double the cost of mid-tier devices from Samsung and other vendors. The cheapest phones in China, made by the likes of Xiaomi, go for about $100 a piece.

“iPhone 5C pricing was higher than what many were expecting at $550,” said William Power of Baird Equity Research, summing up the view of financial analysts covering Apple. “We view this as positive for margins, but not a developing markets killer.”

Another Analyst from BTIG, Walter Piecyk, wrote in a note to clients, “The pricing on the iPhone 5c is simply not low enough to adequately address the significant global growth opportunity that we believe exists with unsubsidized prepaid customers that have not yet bought a smartphone,”

The $549 price tag for the iPhone 5c in the U.S. will likely translate into a higher price in some other countries because of import taxes. In comparison, the leading smartphone sold by Vivo, the largest wireless operator in Brazil, is under $200, Piecyk noted.

“Does Apple have to hit a $200 price point in order to establish a presence in Brazil or other emerging markets? Of course not. But the $550 price tag plus tax is likely to have limited appeal in markets like Brazil and China,” the analyst wrote.

The high-end iPhone 5s disappointed Wall Street and revived fears that Apple’s most innovative days may be behind it. The phone has a fingerprint scanner to improve security, but analysts said that was not likely to be enough to make the iPhone 5s a sure win in the crowded smartphone market.

“There was nothing transformational announced. It has the fingerprint scan and new colors, but bigger features, like different screen sizes, don’t seem to be at the ready. This was less than expected from a company that has a reputation for surprising with a killer product or strategy,” said Luschini.

Apple executives – and the company’s many fans in the industry – maintain both iPhones are best-in-class. While the corporation itself has not addressed the uproar over its iPhone 5c’s price

China is critical to Apple’s growth prospects as its biggest market after the United States. Apple fell to No. 7 in the second quarter in China with a 5 percent market share, losing ground not just to Samsung but also to local rivals such as Lenovo and ZTE.

Early signs point to a lukewarm Chinese response to the new iPhones. Only 2.6 percent of 35,000 Chinese consumers surveyed by Web portal Sina.com said they would consider buying the 5c.

Wall Street is banking on Apple securing a partnership deal with China Mobile Ltd soon, granting the iPhone more than 740 million potential buyers. Some investors were disappointed that a deal was not announced on Tuesday.

The iPhone 5s, which starts at $199 with a wireless contract, and the iPhone 5c will be available on Sept. 20 in the U.S. and 10 other regions, including Japan and China. Apple is taking preorders for the iPhone 5c starting Sept. 13.

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Written by Regina Timothy

Editor of TechNews Report. Loves all things technology

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