Apple's iPhone 5c May Be Doing Just Fine

iPhone 5c. Source: Apple.

First, the iPhone 5c wasn't as cheap as the Street had anticipated. Then retailers began to discount the phone. And now The Wall Street Journal is reporting that Apple (NASDAQ: AAPL  ) is cutting iPhone 5c orders. The iPhone 5c can't catch a break. Should investors worry?

Useless speculation
"Apple Cuts iPhone 5c Orders," read the WSJ headline before it was adjusted later in the day to "Apple's Dual iPhone Strategy in Doubt." Both headlines suggest Apple's new iPhones might not be doing very well. The underlying story, however, wasn't as bearish. Even more, the story was based on questionable information.

The article could have just as likely been titled "Apple Boosts Orders for its Flagship Phone" -- because that tidbit was also in the WSJ article. Though either story makes interesting news, neither reports of Apple cutting or boosting orders provides any meaningful information for investors. Apple CEO Tim Cook said it best during Apple's first-quarter 2013 earnings call, when he warned against using supply-chain information to gain insight into Apple's business.

I suggest its good to question the accuracy of any kind of rumor about build plans. Even if a particular data point were factual, it would be impossible to interpret that data point as to what it meant to our business. The supply chain is very complex and we have multiple sources for things. Yields can vary, supplier performance can vary. There is an inordinate long list of things that can make any single data point not a great proxy for what is going on.

Not all news regarding the iPhone 5c is purely speculation, however. There's some investor-worthy analysis out there, too.

Wells Fargo Securities analyst Maynard Um, for instance, takes an interesting look the why the Apple's iPhone 5c makes sense. Borrowing from last year as an example, Um illustrates potential for 5c demand to ramp up going into the holidays. This isn't the first year Apple has a smartphone priced $100 less than its flagship phone. In fact, it's part of Apple's regular strategy. So, what can we learn from last year? According to Um:

In last year's iPhone launch, the iPhone 5 came out to a strong start as early adopters drove up sales. However, in the mass market holiday season upgrade cycle, iPhone 4s unit sales started ramping, which we believe was due to its $99 starting price point. We believe the 5c could see a similar occurrence as the mass market selling season starts to ramp up into November and December.

And there's arguably no reason a new iPhone 5c with a unique form-factor won't provide at least an equally convincing value proposition to casual consumers this holiday season than the iPhone 4s did last year.

Finally, though it's easy to say Apple would have been better off pricing the iPhone 5c lower, there are also reasonable arguments against such a decision. "We believe Apple's choice was twofold -- maintain pricing and, thus, margins (which is a certainty) or lower pricing, take lower margins, and hope for unit volumes to offset. We think the latter was a riskier, uncertain proposition with no guarantee of price elasticity driving volumes," said Um.

And here's another solid justification for Apple's decision on the iPhone 5c's pricing in fewer than 140 characters. "Apple knows buyers will pay $100 for a significantly desirable upgrade. Were the 5c > $100 cheaper, fewer would rationalize 5s sale," said AppleInsider's Daniel Eran Dilger in a tweet this week.

Don't fret
Though the iPhone 5c has been bashed by headlines, it's still way to early to decide how the phone is doing in the marketplace. To really have any idea how the company's dual iPhone strategy is faring, investors will have to wait to see not only Apple's fourth-quarter results, but its first-quarter results, too -- which spans through the holidays.

Stick to Cook's advice and ignore supply checks. For all we know, the iPhone 5c may be doing just fine. Even more, there are solid arguments Apple made the right pricing decision with the phone in the first place.

What's next for Apple?
Apple has a history of cranking out revolutionary products, and then creatively destroying them with something better. Read about the future of Apple in the free report, "Apple Will Destroy Its Greatest Product." Can Apple really disrupt its own iPhones and iPads? Find out by clicking here.

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  • Report this Comment On October 21, 2013, at 1:12 PM, FoolishLonghorn wrote:

    The scrutiny that Apple receives is simply amazing.

    I am not an Apple customer myself. I purchased a Moto-X for $99 last weekend (with contract). I could have purchased at HTC one for the same price, and the Samsung S4 could be had for $149.

    This was not at the AT&T store, but it was at a large electronics retailer, with significant presence across the US.

    Not a peep in the press about these new flagship phones already being available at a substantial discount.

    Cell phones are super competitive. Apple leaves the top-of-the-line at the same price point for those who want the best, and prices the 5C to compete with the Androids.

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