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After Apple (NASDAQ: AAPL ) debuted its two new iPhones last month (the 5s and 5c) shares sold off. Evidently, investors didn't have much faith in Apple's new devices -- and now it's looking increasingly likely that they're right.
Apple's cheaper model, the iPhone 5c, appears to be selling worse than the company had anticipated, while the iPhone 5s is having stability issues. With Apple whiffing on its latest devices, it strengthens the case for handset makers that use Google's (NASDAQ: GOOGL ) Android, including Samsung (NASDAQOTH: SSNLF ) .
It's clear that the iPhone 5c is just too expensive
Before Apple announced the iPhone 5c, most analysts had expected the phone to sell off contract for a just a few hundred dollars -- about the cost of Google's own Nexus 4. Although Apple has about 40% of the US smartphone market, it's getting obliterated in countries with developing economies, particularly in China, where Google's Android is dominant.
Rather than offer the iPhone 5c at $300 or even $400, Apple debuted the phone at a full $549 in the US -- over $700 in China. As many consumers in developing markets don't have the benefit of carrier subsidies, the iPhone 5c is out of their price range -- particularly when companies like Samsung are offering comparable handsets powered by Google's Android for much less.
Samsung has about 18.5% of the Chinese smartphone market, compared to just 5% for Apple. Other Chinese firms like Xiaomi, Lenovo, and ZTE also lead Apple, and like Samsung, they use Google's Android.
Admittedly, "forking" -- heavily modifying Android -- is common in China, and so Google may benefit little from Android's dominance in the Middle Kingdom. However, the dominance of Google's platform is certainly not good for Apple -- with Chinese developers focusing on Android apps, Apple may soon find itself shut out from China entirely.
Even in the US, where carrier subsidies are the norm, Apple's iPhone 5c may be too expensive. Retailers, including Best Buy and Wal-Mart, have already cut the carrier-supported price to $49, while the iPhone 5c is freely available for purchase on Apple's website.
A report from Chinese tech site C Technology indicated that Apple was cutting production of the iPhone 5c in half, while KGI Securities cut its estimate for iPhone 5c sales by 33%. Cantor Fitzgerald's Brian White, a longtime Apple bull, remarked that in his travels through Asia, both the iPhone 5c and 5s were widely available.
Apple may have destroyed its biggest selling point
But more than iPhone 5c sales, reports of an unstable iPhone 5s could be greater cause for concern. Many consumers may purchase Apple's iPhone over a competing Samsung because of its unparalleled system stability -- well, maybe not for much longer.
There are reports that Apple's iPhone 5s is prone to the so-called "blue screen of death" -- the dreaded system crash that plagued Windows users for years. Analytics firm Crittercism claims that, according to its data, apps running on the iPhone 5s crash twice as often compared to earlier models.
That's hardly surprising. Apple's iPhone 5s sports a 64-bit processor, a step up from the 32-bit processors of prior models. Although it brings increased performance, older apps designed for a 32-bit processor might run into issues.
Not the first time Apple has stumbled with the iPhone
To be sure, this isn't the first time Apple's iPhones have been criticized: the iPhone 4 had "antennagate" and the iPhone 5 brought backlash over Apple Maps. Apple bounced back from those mistakes relatively unscathed, and it could do so again.
But the problems with its newest iPhones do highlight the weaknesses in Apple's strategy. Without a low-cost iPhone, Apple is still unable to compete with Samsung and other handset makers that use Google's Android in emerging markets. At the same time, if Apple is going to continue to control a large of chunk of developed economies, including the US, consumers need to believe its products are superior -- stability issues certainly don't help.
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