Apple cuts 5C orders due to weak demand | Hacker News Reader

Apple cuts 5C orders due to weak demand

cnbc.com

47 pointsloso65 comments

> At the time of the 5C's launch, tech-watchers said the handset was designed to beat off Apple's rivals in fast-growing emerging markets.

I am staying in Thailand, which may be one of those emerging markets. I will comment on the situation in Thailand, but the situation in other countries may be similar.

The average salary in Thailand is about $350. But that does not make Thailand a price-sensitive market for high-end smartphones. If you want a cheap phone, chinese iPhones copies are readily available starting from $40 on markets and even malls. The people who do buy a real iPhone don't generally buy it for it's features, hardware or apps. They buy because they have money and want to show it. You also see a lot of German luxury cars on street, despite the fact that these taxed at 200%. I heard that if you don't you don't have a Mercedes in Thailand, people don't want to do business with you because they think you are insolvent. A cheaper plastic version of the iPhone, isn't going to cut it in these markets. Rather a more expensive Gold version. Gold has a special meaning for Asians, especially Chinese, who form most of the elite in Thailand.

To a lesser extent I think that also applies Western countries. My former boss, who drove a Porsche, commented on the iPhone 4s launch, that it didn't matter what Apple's latest killer-feature would be. People (including himself) will always want to have the latest iPhone.

But that's mainly a niche market - a market of people who wouldn't care even if the iPhone is $2,000.

Apple may very well continue to sell iPhones only to that market, but they will definitely lose market share. And I think Apple, at the very least, wants some compromise between high-end/quality and market share, and aren't purely focused on high-end, no matter what they say in public.

They know that if their market is 5 percent of smartphones (which is starting to look that way in a few years, if they change nothing about their strategy) they will start losing the developers. iOS won't be the platform to get apps first, or the most (already isn't here). And I think Apple will try to avoid that as much as possible (as futile as I think that will be).

I think what GP is saying is that in emerging markets, or at least in Thailand, there is no "compromise" market segment (and it's not going to appear regardless how much Apple "want" it). Normal people get ultra cheap phones, rich people get high-end iPhones, which is why 5c is a miss.

I am afraid I didn't make the difference between the Thai and Western markets clear enough.

Thailand is a strictly hierarchical culture. In the old days it was similar to the Indian caste system. One was born into a caste. Nowadays, how much money you have determines for a large part your position in the hierarchy, but that requires you to show it. Another example: many people don't put their savings in the bank, but wear it in the form of gold.

When I said "People who have money and want to show it" what I really meant was "People who have enough money to buy an iPhone and want to show it". I don't think there is a market here for the 5c. It does not fulfill the purpose of an iPhone: showing that you have money and by extent status.

However, we will see the 5c/s are not released here yet.

If someone can afford a $549 phone, they most probably can afford a $649 phone. At this price range, it's not really a rational decision. It's how desirable the product is (which Apple is very good at projecting). So the customer might as well go all the way and get the top of the line phone. Well I would. Imagine spending $549 and then your friends saying "Oh, but its not 5S".

Indeed, the 5c is just a bad deal; You get the iPhone 5, a model that would've been reduced in price anyway if they retained it, with no big/significant changes other than a plastic shell (downgrade if you ask me). Thats fine if they'd set the price to say $399, but at $549 you would be mad not to lay down another $100 for the 5s.

> with no big/significant changes other than a plastic shell (downgrade if you ask me)

Personal anecdote, but the 5c does feel amazing. A friend replaced his 5s with one and after using it a bit, I wish the 5s was in that case.

Earlier at Apple HQ:

"Listen. Let's put one mid tier phone on the market. Make it expensive but not necessarily any better than its predecessor. Then, we also release a phone which is actually an improvement. Our flagship, if you will. The trick is in making the mid tier marginally cheaper than the flagship. This will make the step to the flagship a lot smaller and as the mid tier is basically its predecessor with a few tweaks and a new housing, the average Joe will not even complain. We are getting rid of the old iPhone fives, improving sales for the more expensive variant and it doesn't cost us a thing!"

Actually I've read this (in a more elaborate version) in either Priceless or Influence (maybe even some hints in Scientific Advertising). Which are two very good reads if you are in anything related to sales, money or almost anything else. It's something I've applied many times and works wonders.

Actual content would be great!

I didn't have time to grab the actual books. You mean chapter numbers, quotes or the general idea in longer form?

My thought when I saw the price differential.

Over-simplified and off-the-cuff:

Many iPhone users seem to personally be on a 2 year cycle. Depreciation circa $300 / year.

Many others seem to be on a 3 year cycle, about as far as one can go before starting to really notice their handset lagging to the point of being unacceptable to them. Depreciation $200/year.

5c: Year old tech, in what for many will be "less pretigious" packaging, for $100 off the price of new tech in "more prestigious" packaging. You're immediately "out" $100, or $200, depending upon whether you are on the 3 year or the 2 year cycle.

$100/$600, for a savings of 17%. For 17% off, you're taking year old tech in a less prestigious package.

Indeed. Furthermore, the type of person who absolutely must get an iPhone minutes after it is released is not the type of person who is price sensitive. 5C buyers are more likely to be upgrading their phone when their existing contract expires etc.

I would expect demand for the 5C to rise over time, particularly if the price differential between the 5C and 5S is widened.

I was thinking that when they launched. There's no way I'd buy a 5C over a 5S, but I was willing to accept that if Apple thought the colourful 5C would sell well then they were probably right. Maybe not. But then if you're going to be wrong about something, this is the kind of wrong you want to be.

It's interesting how the headline is spun though. Demand for iPhones isn't at all weak. In fact (as usual) overall it's much higher than analysts predictions. The surprise is that this demand is weighted towards the higher end product.

Those sound like lousy friends.

I suspect that the kind of people who brag to their friends about a new phone probably have pretty lousy friends -- like-minded souls and all that...

Add that the 5C and 5S overlaps in price (more expensive 5C vs cheapest 5S).

Add also that most consumers """"doesn't pay"""" the full price up front, instead they will pay the phone over a two years contract...

I would move the price band 100$ down for the 5C, just in the middle of the Samsung S3 and S4. Two birds, one shot.

That, in addition to the fact that the 5C is more or less a iPhone 5 in new clothes. So everybody who did not buy the iPhone 5 because they either didn't like it, or wanted to wait for the next release would probably not buy the 5C either as there's almost no difference.

Not quite. 4S owners couldn't affordably buy a 5 because their 2-year contract (on the 4S) wasn't yet paid off during the 5's reign.

If they're buying it outright yes, but it's a different matter on contract. There we might be talking about the difference between an initial outlay of $100 and $200. A trivial amount for some, a significant difference for many.

I thought the 5C was meant as a way for parents to justify buying an iPhone for their kids... would make sense since it comes in so many colors... and it's only $50! That's cheaper than a Nintendo DS.

Good grief, talk about burying the lede. The 5C has lower-than-expected demand because the 5S has been wildly successful, even with it's higher price point (evidence for this: Apple announcing that they exceeded expected sales for all models of iPhone during the first month of sales, and that despite the fact that the 5S is still supply-constrained).

Edit - Here's a better example of how the same facts can be reported: http://www.theverge.com/2013/10/16/4843902/apple-said-to-be-...

I think "exceeded expected" is a bit of marketing speak here. Did the sales really exceed what they expected? If so, they must be pretty bad at forecasting how much of their own stock they sell, time and time again.

And if the 5C was one of the models that exceeded expected sales, why would they be notifying their suppliers of cuts? Wouldn't they be saying "Good news, sales are better than we thought".

The exceeded expectations is completely meaningless. It clearly didn't.

Just to be clear, Apple didn't announce that they exceeded expectations, at least not to my knowledge. They simply (and objectively) announced how many sales they had made, which beat analysts' expectations by a large margin.

Right, that would make more sense.

Just to be clear, this story is rumors from unnamed sources.

Agreed. I also can't find any reference about iPhone 5s wildly exceeding expectations. It looks like Apple put two horses in the race. One performed as expected, the other did not.

The article did say that iPhone 5s sales were good, but in my view, that's secondary. No burying the lede from my view.

They adjusted their revenue guidance upwards after announcing weekend sales. I would think at least one of the iPhone models exceeded sales expectations, not just "performed as expected".

>The 5C has lower-than-expected demand because the 5S has been wildly successful

Correlation is not causation The 5S is doing well not because the 5C isn't. Apple meant the two models for different markets with the 5C meant to ride into the market of low/mid-end android phones unfortunately they aren't finding as much love in that market.

There is no reason Apple (or any other company) to release a product to cannibalize its' own existing market especially when they are getting consumers to pay a premium for the existing product

I don't understand what you are saying? Is the headline or the article wrong?

No, he's suggesting it is painting an incomplete and therefore misleading picture.

Apple always exceeds their own numbers. They're notorious for setting extremely conservative guidance so they can easily jump over it and claim amazing success (even if revenue growth has ground to a halt and profit 'growth' is moving backwards).

Every version of the iPhone that has ever been sold has been supply constrained, there's no news there. They do it on purpose (or they're wildly incompetent after seven years of making the iPhone).

I don't think being supply constrained at launch means they are incompetent. When you have a large % of people who want to buy it as soon as it comes out, if you build your logistics to have enough supply at that time, you'd have too much capacity other times.

But they definitely set the bar pretty low each time so they keep the image of every new product selling out.

I kept reading before launch about the $100 phone Apple was launching and was excited. But to my disappoint I later realised it's $100 + ridiculous contract (apparently the notion of contract free phones doesn't exist in the US)

I think if Apple launched a "budget" phone it would destroy much of the Android market. Maybe it would damage their brand though, who knows.

#I think if Apple launched a "budget" phone it would destroy much of the Android market. Maybe it would damage their brand though, who knows.

The battle lines between IOS and Android are more around choice and configurability, not so much price. IOS has a standard set of highly polished features. Android has more features, but they don't integrate as well as they do in IOS, nor do they have the polish. Add hardware configurations, phone sizes, etc and you have a very diverse Eco-system with Android. Most Android users I know wouldn't want an iPhone at almost any price. So, no market destroying would occur.

Contract-free phones do exist. But if you want a brand new expensive phone without paying full price and without a contract, it better be your birthday because otherwise I don't see who's going to pay the difference.

>>> I think if Apple launched a "budget" phone it would destroy much of the Android market.

Not likely. Apple core customers would shun it because it's not fancy enough, and Android core customers would shun it because it's Apple-built jail and because they want the apps they're used to. It's like saying if Windows were a bit cheaper Linux wouldn't exist. Not likely.

In the UK you can buy a good spec Android phone without contract for £100 (one of the Huawei models).

I personally wouldn't shun an iPhone at a similar price point (I find them more polished but too expensive for my budget), perhaps I'm an irregular customer though.

iPhone 5S base cost is estimated around $200-$300[1], so iPhone for £100 should be either seriously inferior model or seriously subsidized. Apple does not need to subsidize it - they sell fine as is. So either carrier subsidizes it and gets their money back in contract fees, or you are paying the cost plus margins of all the middlemen (unless you manage to buy it straight from the assembly line, which you can't).

[1] http://www.asymco.com/2012/02/22/the-iphone-manufacturing-co...

"It's like saying if Windows were a bit cheaper Linux wouldn't exist." Actually, Windows can be had for free, while iOS devices can't. If it weren't that way, I bet that Linux would have a huge user base by now.

> I think if Apple launched a "budget" phone it would destroy much of the Android market. Maybe it would damage their brand though, who knows.

So long as they maintained quality their brand would be fine, but their profits would take a serious beating. To compete with low to mid range Android phones they'd have to seriously cut prices and margins on their low end devices. This means the low end devices would be better value than the higher end devices, sucking sales and therefore profits from them.

Apple simply doesn't need higher market share. It already has a much more dynamic and valuable app platform and media ecosystem. What Apple does need is a high market share in terms of paid apps and services. These are where the actual value of a platform come from.

Right now if you want the best apps and services, you buy Apple. If that changes, then they'll have a problem. However large volume sales of cheap Android phones that only ever run the pre-installed apps are simply not a threat in this regard. The market share platform argument against Apple only works if all those Android phones are actually being used as app and service platforms. If they're not, then they're irrelevant.

There will always be a contingent of sophisticated customers that will prefer Android, or even Windows phones. Those people will continue to buy flagship Android devices, and there's really nothing Apple can do that will change that. This is fine, and it's not a threat to anybody. Large scale sales of low end Android phones similarly isn't a threat to Apple. For now Apple is quite happy doing what it has always done, or tried to do. It's taken control of the high end of the market, making vast amounts of money and doubling down on quality and user experience. They're not a threat to high end Android phones, they're not a threat to low end Android phones, and those phones are not a threat to them. They're in competition, sure, and neither 'side' can afford to slip up.

Steve Job said many years ago that Apple and it's customers had to give up the notion that for Apple to win Microsoft had to loose. It's like than here. For Apple to win, Android does not have to lose. The problem with Apple adopting a low-profit scorched earth, market share first policy against Android is that it would only leave scorched earth left, and that's no basis for growing a strong business.

>Right now if you want the best apps and services, you buy Apple.

This argument is about 3 or 4 years stale and needs to stop IMHO. What at all will you call a best app today that will drive someone to buy an Iphone instead of say, android because an equivalent one or even the same app isn't available at the Play Store?

Yes, there are a lot of poor apps in the Play store but I can find similar ones on iTunes. Again there are a lot of great apps in the App Store but I find them at the Play Store as well.

The 5c isn't hugely less expensive than the 5s (it only looks like half the price due to carrier subsidies). So this doesn't surprise me -- if you're going to locked into a contract, most people are better off ponying up the $100 -- much less than the cost of the cellular service. So consumers are rightly choosing the 5s.

Is Apple not concerned about losing developer momentum? Paid apps are on the way down. Market share is becoming more important than ever. Only in the US will a large share of the population pay $600+ for a phone. Strong iPad sales will buy Apple some time but i suspect that more and more developers outside the US will go Android first.

Android is a monopoly. The network effect will get worse and worse and worse. Two or three years from now, Apple will be lucky to have 7% of the global smart phone market. The only thing left is for the iPhone to be squeezed into an ever smaller corner, as Windows did to them last time. Tech markets like these are almost always winner take 95%.

Over the next three years, Android will take over 80% of the tablet market as well. The iPad will potentially suffer an even worse fate than the iPhone market share wise, because the subsidies aren't going to be there for much of the tablet market. The iPad will be competing with $125 and $200 tablets that are 90% as good at half the price. The outcome has always been obvious.

"Apple began selling it's the new low-price option last month in 11 markets" – low price?

Compared to the 5s.

Apple's multi-million dollar trial and error pricing exercise.

The Monday morning quarterback in me will now say that "in order to differentiate an excellent product (5C) with a premium product (5S) is to at least sell the 5C under the €400 level. At a €100 price delta users are 'clearly' price elastic"

If margins of the 5C at a sub-€400 price are not those Apple expects from its products don't build the 5C.

Are there really quarterbacks who reason in euro??? ;)

only those who use the euro as their reserve currency :-p

I was looking at iPhone prices on the German Apple site, hence the euro explanation. The US Apple site is a pain if you want to compare unsubsidised iPhone prices.

I was just kidding of course - moreover I live in Italy ;)

It's no surprise that Apple also announced that it's hiring Angela Ahrenditz, CEO of Burberry. She guided the company from a cheap image crisis to a successful luxury brand.

I think Tim Cook want her to do the same to Apple. The iPhone needs to be seen as a luxury brand.

Weren't they already a luxury brand? Aren't they diluting that perception by putting out a plastic phone? They haven't done a plastic case for anything in years.

Yes, absolutely. The iPhone IS the luxury brand of smart phones, and always has been. There are only two possible outcomes: they lose that status with lame gimmicks like the iPhone 5C, or maintain it by sticking to what Apple's brand stands for despite the risk of losing more market share.

Can someone please explain me something that I don't understand?

I'm quite sure that Apple has smart economists. So why do they call something that costs 15% less than something expensive "low price"?

Thanks.

The question isn't whether the 5c is selling less then the 5s. It's whether the 5c is selling more than the 5 would. Too early to ask.

I wonder if all of this was just a clever trick to provide bigger contrast and thus justification for buying the more expensive model.

If it were actually cheap and sold at a price with very little to no profit and was simply used as a tool by Apple to gain market share, it could have worked out very well. But no, they thought they could resell old components with little added extra but an increased version number to the masses. The reality distortion field has its limits.

> very little to no profit and was simply used as a tool by Apple to gain market share, it could have worked out very well

Not not sure Apple is interested in this 'race-to-the-bottom' contest.

It is not a race-to-the-bottom contest but expanding your market. Note that Apple is not only about iPhones. When they have a growing iPhone-user-base, their iTunes division and iCloud division will grow with it.

> Note that Apple is not only about iPhones.

Actually it is. Well actually it is about hardware sales. iTunes is contributing only ~5% to the revenue while iPhone sales alone are over 50%. So giving hardware away for cheap and making it up in volume won't really work.

http://www.macrumors.com/2012/01/24/apple-reports-best-quart...

iPhone sales are stronger than ever before. They're selling the high margin, high end models hand over fist. And the answer to solving this terrible predicament they find themselves in is to sell the lower end phones at cost?

Increasing margins and profits are not a predictor of success in this business:

''We are experiencing marked improvements in our gross margins as a result of lower component costs and strong sales of the computers we introduced a year ago,'' John Sculley, Apple's chairman and chief executive, said in a statement. ''At the same time, we continue to focus on managing the growth in our operating expenses.''

http://www.nytimes.com/1990/04/19/business/company-earnings-...

Apple's margins are falling, and will continue to for years to come as their elaborate subsidy ride comes to an end. Carriers will not be willing to bend over endlessly for a company with ever shrinking market share.

Well for $100 I'd rather get the 5S. It would be a whole different story if the difference was 200-250

The 5C does not have to sell. It purely has to be the 'other' choice instead of Android etc. being the 'other' choice. It is there to make the deluxe 5S seem a 'bargain', that is all. This makes purchasing the 5S a lot easier for the customer, psychologically.

As for Apple cutting orders due to weak demand, they simply placed a large initial order with their suppliers to get a better price. They probably told them it was going to sell like hot cakes when all along they only needed a modest quantity. They now go back to them and say 'sorry folks we won't be needing so many for the next order' and the suppliers walk away wishing they had charged more per unit with the first order.

Note this article is thin on sources and the angle implied - 'weak demand' is just interpretation.

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