It was rather surprising to hear Tim Cook admit on the most recent call that the call that reaching supply/demand balance with the 5s took the company more time than had been anticipated. While many had believed that the iPhone 5c was designed to push customers to the higher end iPhone 5s, it seems that Apple (NASDAQ:AAPL) had actually banked on the 5c making up a meaningful portion of the mix. The 5c didn't do as well as expected, due likely to a higher-than-expected price for that feature-set, and a warmer-than-expected reception to the 5s. So, is an 8GB variant of the 5c going to change much?
The notion that the since the iPhone 5c 8GB edition is 40 GBP cheaper ($66) than the iPhone 5c 16GB edition that those who couldn't afford the $549 16 GB iPhone 5c will suddenly be willing/able to hop on board the Apple bandwagon is ridiculous. Understand that for what is effectively $480, Apple is selling you a phone with 2012 internals and a meager 8GB of storage. Of course, one could argue that the Apple brand has some real value (and it does), and one could also reasonably point out that if you want the polished, smooth experience of iOS, you can only get it from Apple. But that's not really the point.
The point is that if you're in an emerging market like India, or if you're somewhere like China, you can get your hands on a fairly decent Android smartphone for $99. Now, you are going to get what you pay for, and such a phone isn't going to have the fast processor (yes, compared to these Chinese phones, the A6 is blazing fast), nor will it have a ton of memory. And, frankly, the included software isn't going to be all that efficient and – yes – the user experience won't come close to that of an iPhone 5c 8GB. But hey, you've got to make sacrifices when the average family income in your country works out to $2,100 per year. Also remember that people need to pay for service on top of the upfront hardware cost.
Look what you can get for $179
Forget for a moment the extremely dirt cheap Chinese phones, and then realize that even if you look at something like a Moto G, which comes with a 4.5" 1280x720 display, a reasonably fast Qualcomm (NASDAQ:QCOM) Snapdragon 400, and is priced at $179 for the 8GB version and $199 for the 16GB version, it quickly becomes obvious that customers can get a pretty darn good user experience for little cost. Is this phone going to break any performance records? Nope, it doesn't even support LTE. Is it going to have the world's slickest UI? Nope. But if you only have $179 to spend, is it an infinitely better choice than a $480 iPhone 5c? Yes.
Foolish bottom line
So, as you can see, the iPhone 5c with half the storage for just shy of $500 isn't likely to dramatically boost sales. Further, the gross margin percentage of these devices is likely to be meaningfully lower than the 16GB flavor as 8GB of NAND flash is only about $3.41 . This isn't a great deal on Apple's part, although since each unit is still gross margin dollar accretive to Apple, the company doesn't really lose – it's just not the panacea that Apple shareholders are looking for. The key is to take more share at the high end against the likes of the Samsung Galaxy Note 3 and the Galaxy S, which is what is likely to happen with the next generation iPhone 6.