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As a student of finance, computer science, and math, I am working on innovation that ties the three together. Primarily, I will be writing articles about the influence of technological innovation on its respective sector and companies within. Innovation does not plateau. Moore's Law has... More
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  • Apple's IPhone 5c: The “C” Is For Cowardly

    On September 10th, for the first time in history, Apple (AAPL) simultaneously announced two new iPhones: the iPhone 5s and the iPhone 5c. Subsequent to the media's absorbing and releasing the news, Apple's stock took a hit in after-hours, falling a whopping 5.5% in value.

    (click to enlarge)

    Apple is losing its zeal: evolving from a fast-paced, disruptive startup to a conservative, stagnant corporation. The 5c is the latest product of Apple's current standstill in disruptive innovation.

    Please don't misinterpret my vitriol. The iPhone 5c is a beautifully designed device; Jony Ive, senior vice president of design, has done a terrific job-the best one could do with plastic. Rather, it is Apple's strategy that is not so beautiful.

    Apple is playing it safe. The release of the iPhone 5c is the result of a cautious, sales-driven approach that seems to have permeated the Apple corporate culture. The 5c is a plastic device with a single purpose: penetrating foreign markets. Under Tim Cook, product development is driven by numbers and revenue margins, and assuming Cook's outlook remains unchanged, Apple is destined for a dull corporate future.

    Unfortunately, the most appealing characteristics of the iPhone 5c are the five possible color variations: white, pink, yellow, blue, and green. This is not the first time we've seen such a spectrum from Apple. The iMac G3 flaunted 13 "flavors" in 1998; color options similar to the 5c's have accompanied releases of the iPod Mini in 2005, the iPod Shuffle in 2007, and the iPod Touch in 2012. Coloration is nothing new or special. Though it has worked extraordinarily well for Apple in the past as a marketing point, it cannot be used in lieu of innovative hardware. Color will not prop up an otherwise listless product.

    All of the aforementioned generations of devices have penetrated the market successfully. The difference is that these devices were standalone-the iPhone 5c has been brought into the market in the shadow of its more powerful and sophisticated counterpart, the iPhone 5s. This strategy promises numerous negative repercussions on the market, the worst falling on the early iPhone 5 adopters. Now, exactly one year after the release of the iPhone 5, one can pick up a slick-colored device with almost precisely the same capabilities: something of a slap in the face for early adopters.

    But what impact will the iPhone 5c have on the market?

    One complicating effect is the creation of a hierarchy of users: those with the gold, silver, and much buzzed-about space gray colors exclusive to the iPhone 5s, and those with the neons.

    It is anticipated that Apple will enter into an agreement with China Mobile (CHL), China's preeminent telecommunications corporation and the world's largest. Apple expects the iPhone 5c to penetrate foreign mobile markets, particularly China's, of which Apple currently claims 4.8%. China's mobile market is growing and increasing in revenue. It is imperative that Apple tap into this monetization stream if it is to stay afloat in the Asian mobile markets.

    The graph below represents the market share of prominent mobile operating systems in China. Android (used in Samsung mobile devices) is increasing as others are collectively decreasing.

    (Note: iOS is the mobile operating system exclusive to Apple devices)

    (click to enlarge)

    A lower-costing phone from Apple will not penetrate China's market. Most will argue the contrary, claiming its low price (99 USD) will increase market share. But it is quite difficult for a Western consumer to put themselves in the shoes of a Chinese consumer. To put this into perspective, imagine your current carrier starts offering a new phone from a foreign manufacturer. Let's say this manufacturer is Xiaomi. You may have heard of Xiaomi, a growing manufacturer in China. Are you going to purchase their phone with a two-year contract? You might. But you'd be far more inclined to continue with the Galaxy or iPhone you've had for so long. Brand loyalty plays a crucial and often overlooked part in discretionary spending.

    Apple's unwillingness to take risks will not help iPhone 5c sales. Apple has taken the safe route by adding color to the iPhone 5 and decreasing the price. This is not innovation by Steve Jobs' standards, or the public's.

    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.

    Sep 23 11:14 AM | Link | Comment!
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