Apple's Cheap Smartphone Isn't Cheap Enough


It won't come as a surprise to anyone seeing an ample supply of 5c devices at Apple retailers, but sources are telling The Wall Street Journal that the tech giant is scaling back orders from the device's two assemblers.

Sources say Apple has scaled back orders by less than 20% for the current quarter from Taiwan's Pegatron and by a third at Hon Hai Precision. A component maker has been notified of a 50% cut in orders, suggesting that production will be scaling back even more next quarter.

This isn't a reason to bail on Apple. The iPhone 5s continues to sell briskly by nearly every account. But it should once again raise questions as to why Apple didn't price its iPhone 5c more aggressively.

Source: Apple.

It was a gamble from the start. Pricing the colorful plastic-shelled iPhone 5c at $100 less than the iPhone 5s may seem like half off in this country where carrier subsidies dramatically shave the upfront cost to those tethering themselves to two-year contracts. But this was supposed to be the device that opened up new markets overseas, where wireless providers aren't as generous. In China, for example, an unsubsidized iPhone 5c at roughly $735 may be cheaper than the iPhone 5s at $866, but it's no threat to the other high-end smartphones running Google's Android that cost hundreds less.

Closer to home, shoppers aren't dumb. They know that the iPhone 5c doesn't cost half as much as the iPhone 5s. They are still subject to the same costly pricing plans that set them back roughly $2,000 for two years at the two largest carriers. What's the difference between the iPhone 5s at $2,200 and the iPhone 5c at $2,100? The features are fewer, and the colorful shells aren't much of a draw to consumers that will just slap a protective case on the device.

If the iPhone 5c was supposed to be Apple's response to Google's growing momentum, it doesn't appear to be working. As of the second quarter, tech tracker IDC had Google's Android share growing from 69% to 79% of the global smartphone market over the past year. Apple's iPhone went from 17% a year earlier to 13% this time around.

We'll have a clearer snapshot when Apple reports in two weeks. We can compare its iPhone sales for its fiscal fourth quarter and its overall guidance for the holiday quarter to where it was a year ago. Apple doesn't have to play the mainstream market, but letting Google's Android continue to grow unchecked doesn't seem like a very smart strategy.

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