Apple Slashes Assembly Production Of iPhone 5c, Shares Still Rise
Apple (NASDAQ: AAPL) has asked assembly contractors Pegatron and Hon Hai to slow their production of the iPhone 5c. Apple reduced its orders from Pegatron by 20% and revised its orders from Hon Hai downward by one-third. The reduction in assembly suggests that the iPhone 5c may not be selling as well as Apple had hoped.
The information comes from unnamed supply chain sources cited by Reuters, and while Apple has not confirmed the details, the reduction in orders is not surprising based on recent reports that the iPhone 5s is outselling the 5c by a factor greater of two to one.
The Consumer Intelligence Research Partners (CIRP) indicated earlier this week that Apple’s iPhone 5s accounted for 64% of total iPhone sales at the end of September and is outselling the 5c by a significant margin as the iPhone 5c lagged behind with 27% of sales. The iPhone 4s comprised 9% of sales. When purchased on contract, the iPhone 5s retails for $199, the 5c for $99 and the 4S is now free.
Over time, the lower-priced phones have tended to gain share versus the flagship phone, after the initial rush of dedicated upgraders to the newest device,” said CIRP in a statement provided to AllThingsD. “So we expect that the 5c will account for a higher percent of total U.S. iPhone sales in the coming months, but the design changes may alter that dynamic. The iPhone 5c may appeal to different buyers than the legacy 4S did last year, or the new 5s will this year.”
Many are calling into question Apple’s pricing strategy for the iPhone 5c, as it is essentially a repackaged version of last year’s iPhone 5. While the 5c is cheaper to manufacture, the pricing differential is just not enough to appeal to consumers.
This reflects a failure in Apple’s pricing strategy,” said Bevan Yeh, a Taipei-based senior fund manager at Prudential Financial Securities Investment Trust. “The price differentiation between 5C and 5S is too small. It’s an iPhone 5 with plastic casing and isn’t worth the price.”
With only a $100 separating the 5s from the 5c, many consumers are opting to spend the extra money and go with the high-end model. In China and India, the $549.00 iPhone 5c simply cannot compete with the entry-level Android phones that cost $200 or less.
In addition, U.S. retailers such as Walmart and Target have already discounted the iPhone 5c by $50, a move that generally points to weak demand. Apple stated that it moved 9 million iPhones in just four days, but did not mention how many of those were 5s or 5c.
Analysts warn against predicting the downsizing of Apple’s supply order with poor sales, because of the complex and turbid nature of the company’s supply chain.
Despite the reports of production slashing, shares for Apple rose as high as $502.53 Wednesday morning, a 0.8 percent jump.
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