iPhone 5C: A Cheap Phone Or A Cheap Strategy?

| About: Apple Inc. (AAPL)

The long wait for Apple's (NASDAQ:AAPL) iPhone launches has finally come to an end. On 10th Sept, the company introduced its iPhone 5S and a cheaper iPhone 5C. As the price of iPhone 5C was not revealed prior to the event, people were very excited about this new phone category. However, once the price of iPhone 5C was announced during the event, it turned out a sheer disappointment for many as it is not actually a "cheap phone.".

iPhone 5C should have been a significantly cheaper phone, mainly targeting the emerging markets or a lower market segment in developed countries, and competing against the dominating Android phones. But I believe that CEO Tim Cook is not fully aware of the meaning of a "cheap phone." It should not only be cheap for manufacturing but also provide relief to the customer's pocket. However, Cook only focused on the manufacturing side.

Same specifications as iPhone 5

iPhone 5C is just a replica of iPhone 5 with same specifications, but produced at a lower manufacturing cost. The only differences between these two phones are that the iPhone 5C is slightly heavier than iPhone 5 and it comes with the plastic casing in different colors.

Besides its vivid design, the iPhone 5C is almost the same as iPhone 5. The core features which include the processor, screen, connectivity are the same, while the camera only has a few extra features. The 5C is a little fatter and heavier than its predecessor. Also, there is no 64GB version, only 16GB and 32GB versions will be available.

The iPhone 5C uses the same 4-inch (640 x 1136) Retina display as its predecessor. The panel has 727,040 pixels onscreen, which work at 326 pixels per inch. It is good, but it is still way behind other smartphones available in the market such as the Samsung Galaxy S4 (440 PPI) and the Sony Xperia Z1 (440 PPI).

The iPhone 5C uses the same five-elements, 8MP lens (with an f/2.4 aperture) and 1.2MP front camera, as the older iPhone 5. Apple has added some extra features on the face of it, but the basics are the same. The iPhone 5C matches the iPhone 5's 1080p video capturing capabilities but with added video stabilization.

On the downside, the iPhone 5C doesn't enjoy a speed boost and is based around the same A6 processor that drives the iPhone 5. However, the new iPhone 5S comes with an A7 processor which has double performance speed as compared to A6. The iPhone 5C consists of a custom-built 1.3GHz dual core ARM processor with an integrated PowerVR SGX 543MP3 GPU.

iPhone 5C reduces the cannibalization affect

Over the last few years, the launch of new versions of the iPhone and iPad has resulted in sales cannibalization. The main idea behind launching the plastic casing iPhone 5C with a simultaneous discontinuation of the iPhone 5 was to avoid the sales cannibalization of iPhone 5S. With the withdrawal of iPhone 5, it becomes impossible to have a similar device (look wise) as the iPhone 5S at a discounted price. Apart from avoiding the cannibalization effect, the iPhone 5C enhances the margins of Apple as its manufacturing is quite cheaper than iPhone 5. Either way it's a win-win situation for Apple, at least that what Cook thinks.

Price Comparison

The iPhone 5C is available for $99/$199 (16Gb/32GB) on contract and will cost $549/$649 (16Gb/32Gb) off contract. By launching this cheap iPhone, Apple's CEO wanted to convey the message that even its cheap iPhone is a bit expensive than its competitors' smartphones. Thus, making a quick price comparison of iPhone 5C with its close competitors Samsung S3 that is currently available at a price of $400/$450 (16GB/32GB), the "Cheap" iPhone 5C is overpriced by $150. Similarly, HTC One is currently available in the market for $600 (32GB) and it does not have a 16GB version. Samsung S4 is costing $600/$650 for (16/32GB) i.e. $50 higher than the market price of iPhone 5C. Most importantly, all these smartphones have better features, including screen resolution, size, processor, battery life and external storage facility, as compared to the iPhone 5C.


The iPhone 5C, being more expensive than expected, clearly highlights the fact that Apple is not interested in snatching the market share of the cheap Android and Windows smartphones in emerging markets with the launch of its cheap iPhone 5C. The true objective is not to expand Apple's presence in the emerging market but to reduce the sales cannibalization between the iPhone models while at the same time improving its margins. So, there is still a big question mark on how Apple's so called "cheap phone" will boost its market share in emerging markets, where brand loyalty and prestige takes the back seat when it comes to price.

Apple has always been a provider of revolutionary products. Starting with the iPod, then the iPhone and later on the game changing technology, iPad, a product category that the customers didn't even know existed. However, after this the company's innovation has been somewhat stagnant with no more breakthrough technologies coming up, rather just an up-gradation of its existing products is being done. I believe that the company direly needs an innovative product to make its customers and investors happy. In my opinion, downgrading (in case of iPhone 5C versus iPhone 5) the products could also be an option.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.