Apple Lifts Production of iPhone 5s, Cuts iPhone 5c

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More evidence surfaced that the Apple (NASDAQ: AAPL) iPhone 5c is a failure. To make matters worse, it has been in the market such a short time. Apparently, consumers do not want the under-featured, over-prices smartphone–no matter how many colors it comes in. On the other hand, there is growing evidence that Apple’s new flagship–the iPhone 5s– is an unqualified success.

Consumer electronics research firm NPD Group reported that:

The diverging fates of Apple’s iPhone 5s and 5c have been widely reported, and our latest channel checks confirm that Apple indeed has cut back 5c production by 35% and increased 5s production by 75%.

The disappointing performance of the 5c can be attributed to two factors. First, Apple is a profit-driven company, and decided to raise their price in order to hit its profit target when Chinese carriers cut their subsidies on the iPhone 5c. The selling price of the phone is determined by material cost, target profit margin, and subsidy. The company could have sold the 5c at a much lower price (as the market expected); however, Chinese carriers were aggressively gaining new subscribers through device subsidies during Golden Week (first week of October). If Chinese carriers allocated a higher subsidy to new iPhone 5c subscribers, they would have less to subsidize other brands’ devices. Perhaps Apple miscalculated the launch timing, considering they were aiming at the China market.

Second, the market’s expectation of what the iPhone 5c would be was very different from how Apple wants to position itself. It was not Apple’s intention to develop a product targeting the “low-cost” smartphone segment. However, rumors about iPhone 5c being “cheap” were circulating as early as Q3 2012. The fact that the iPhone 5c is nearly identical to the iPhone 5 – and is not cheap – disappointed some consumers.

Apple cannot afford to lose face by killing the iPhone 5c. It is, however, in the unenviable position of having to cut the smartphone’s price, and perhaps cut it sharply.

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