Why Apple's iPhone 5c Could Still Be a Winner

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Tech giant Apple (NASDAQ: AAPL  ) stole the show for a second straight week when it announced earnings on Monday. By all appearances, it's business as usual for Apple's powerful profit machine.

As is always the case, the iPhone was the main profit driver during the latest earnings period, the first quarter for which Apple's recently released dynamic duo -- the iPhones 5s and 5c --were available for purchase.

iPhone 5c. Source: Apple.

Lately, one of the most widely discussed aspects of the seemingly constant Apple coverage has been the lack of interest in the plastic iPhone 5c. As was discussed frequently several weeks back, Apple appears to have reduced its build orders for the 5c with two of its key assembly partners for the calendar fourth quarter of this year.

However, investors should pump the brakes before casting the iPhone 5c as a total failure. In fact, if the past is any indicator, there are plenty of reasons to think that Apple's lower-end iPhone experiment might not be quite the bust it's been made out to be, at least not yet.

Past iPhone launches
One of the problems in labeling the iPhone 5c as a dud is that we're dealing with a frustratingly small sample size.

Many of the consultancies that track iPhone sales have only released numbers for the newest iPhones in their launch month of September. In looking at Apple's smartphone sales for that month, it's immediately clear the iPhone 5s has been simply killing it. But when compared to past iPhone rollouts, strong high-end iPhone sales shouldn't come as much of a surprise.

Source: CIRP via AllThingsD

Put into historic context, the fact that the iPhone 5s is vastly outselling the lower-end iPhone 5c is really par for the course.

In fact, the 5c slightly narrowed the gap between the top and second-tier devices versus last year's first month of iPhone sales. However, again because of the 5c's radically different design, a slight sales bump versus the second-tier device in last year's iPhone lineup is understandable.

And if you keep consulting Apple's historic iPhone sales trends, the iPhone 5c could see its sales grow dramatically in the coming months.

Onward and upward
iPhone sales in the months immediately following a new device release should dramatically favor the higher-end smartphone for a number of reasons.

The first thing that should skew Apple's sales figures toward the high-end iPhone is the early adopter bias. There isn't necessarily firm data on the matter, but it's fair to assume a larger-than-average portion of the initial buyers are Apple enthusiasts and brand zealots to whom price plays a lesser role in the buying decision than it does for the average Joe. They're the kind of fans who will wait in line for several days to get their hands on Apple's latest gadget. This set pays up for the latest and greatest iPhone, plain and simple.

Beyond the early adopter bias, Apple's product rollout schedule is a major driver of this favorable skew toward the high-end iPhones. Apple has always issued its iPhones in waves, the first of which typically focuses on developed countries like the U.S., Canada, Australia, Singapore, and the U.K. This year's iPhone 5s/5c rollout notably included China for the first time, but, aside from the Middle Kingdom, this dynamic was firmly intact. Apple's focus on rich, developed economies that can more easily afford the higher-end iPhones is a factor in buoying its newest smartphone's sales.

This dynamic erodes as the iPhone rolls out globally into a greater share of more price-sensitive, emerging markets, as we've seen in the past.

Source: CIRP via AllThingsD

Again, this should make implicit sense as well. As the newest iPhone moves into markets with lower per-capita incomes and Apple drops the prices of its older models, you see a clear uptick in their share of total iPhone unit sales. This time should be no different.

Apple's rollout to emerging markets is really just getting under way. Last Friday, the company rolled the iPhone 5s and 5c out in 28 additional countries, including Russia, Thailand, and the Czech Republic. On Nov. 1, the latest iPhones will hit more than a dozen additional countries, including Mexico, Turkey, and Saudi Arabia. And even though the iPhone 5c is still more expensive than the average selling price of a smartphone in many of these markets, it seems reasonable that its sales should accelerate in the coming months.

Boom or bust ahead?
I'm not trying to frame Apple's iPhone 5c as a resounding success here. Any time you hear rumors of reduced orders, investors should understandably raise an eyebrow. However, whenever you hear a news item like the weak iPhone 5c storyline that surfaced a few weeks back, it bears remembering that such leaks often happen in isolation. In the case of a company like Apple with a truly massive global supply chain, a single data item doesn't tell you very much.

As we saw above, if history is any indication, things should only get better for Apple's latest iPhone experiment.

Be a smarter Apple investor
As Apple proved with its latest iPhones, its long history of cranking out revolutionary products, and then creatively destroying them with something even better is firmly intact. Why should you care? We explain how this relates to 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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