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New iPhone 5c has analysts talking about possibly poor sales

A month after the release of the iPhone 5c, discounts and wide availability in stores suggest that for once Apple didn't produce a blockbuster smartphone.

October 17, 2013|By Chris O'Brien
  • Customers check out the iPhone 5c at an Apple store in London this week.
Customers check out the iPhone 5c at an Apple store in London this week. (Simon Dawson, Bloomberg )

Is the iPhone 5c a rare miss for Apple?

Little over a month after its release, analysts are questioning how well Apple's new plastic-encased smartphone is faring with consumers.

That scrutiny is being driven by a number of warning signs that have raised the prospect that the 5c might be the first new iPhone to be anything less than a runaway success.

Retailers have already been offering discounts on the phone and several analysts are alleging that Apple has told suppliers to cut back on iPhone 5c parts production. One Verizon Communications executive said Thursday that the iPhone 5c had "undersold expectations." And although the pricier iPhone 5s remains hard to find, the 5c appears to be readily available just about everywhere.

With Apple being Apple — it keeps sales figures close to its vest and refuses to comment on the reports — no one can be quite sure how the iPhone 5c is doing.

"The real answer is that no one outside of Apple really knows," said Carl Howe, a Yankee Group analyst.

Although Apple makes big money selling Macbooks and iPads, the performance of the iPhone remains the closely watched barometer of the company's success. Barclays Research estimates that the iPhone accounted for 53% of Apple's revenue for the fiscal year that ended Sept. 30, compared with 19% for the iPad.

When Apple first revealed the iPhone 5c last month, it marked a departure from the company's usual strategy of releasing one new iPhone at a time.

On Sept. 10, the company debuted the iPhone 5s as its new high-end phone, complete with faster processor, fingerprint scanner and improved camera. But it also rolled out the 5c, which sports a plastic case, comes in five colors but is otherwise largely similar inside to the iPhone 5 that was released a year ago.

"IPhone 5C is beautifully, unapologetically plastic," Apple design guru Jonathan Ive gushed in a promotional video.

Though the plastic case was expected, the price surprised many analysts. As rumors spread that Apple was making a plastic smartphone, analysts assumed this was the "cheaper" iPhone they had argued the company needed to better compete for first-time buyers of smartphones and customers in emerging markets.

Instead, the 16-gigabyte iPhone 5c costs $99 with a two-year service contract, about $100 less than the 5s, but it's more expensive than the iPhone 4s, which many carriers were offering free with a contract. Without a contract, the iPhone 5c costs $549, putting it out of reach of many consumers in countries where carriers don't subsidize the cost of the phone.

Typically, the iPhone 5 would have become the mid-priced phone, but Apple discontinued it.

Apple's sales efforts since then have seemed to focus on the 5c, which is the subject of television ads. Visitors to the website are greeted with a large display of an iPhone 5c with the slogan "For the colorful." The company also allowed consumers to pre-order the 5c, but not the 5s.

The strategy of releasing two new phones seemed to pay dividends when the company announced it had sold 9 million new iPhones the first weekend, blowing past all expectations and the previous record of 5 million, set a year ago.

However, Apple counts a phone as sold when it's delivered to a partner such as Best Buy or AT&T Wireless. Some analysts estimated that 2 million to 3.5 million of those 9 million iPhones were not sold to customers that first weekend and were sitting at retail stores.

After the first weekend, the iPhone 5s became hard to find in stores, and Apple's website continues to project several weeks to deliver one. By contrast, the 5c has remained widely available, with the website offering to ship one in 24 hours.

Within a couple of weeks of its debut, Best Buy and Wal-Mart were offering discounts on the iPhone 5c.

First, Best Buy announced a promotion that gave a $50 gift card to customers who bought the iPhone 5c at a store. That gift card could be used at the time of the sale to cut the price of the iPhone 5c with 16 gigabytes of memory from $99.99 to $49.99.

Then Wal-Mart tried to top that by cutting the price of the iPhone 5c to $45 with a two-year contract. Wal-Mart had been selling the device for $79.

Best Buy then turned around and offered a trade-in promotion running this weekend. The store will give anyone $100 for his or her old smartphone that could be used to buy the iPhone 5c or iPhone 5s.

When asked for comment about sales of the iPhone 5c, Best Buy spokesman Jon Sandler said he couldn't speak for Apple, but reiterated that the trade-in promotion, which runs through Saturday, was for the 5c and 5s.

Meanwhile, several reports suggest consumers have been buying the iPhone 5s in much greater numbers than the 5c. Consumer Intelligence Research Partners reported that 64% of iPhones sold over the last month were the 5s, compared with 27% for the 5c.

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