Apple’s new iPhone 5C is “unapologetically plastic” — as its designer Jony Ive says — but it’s also unapologetically pricey.
Any thoughts that Apple would dip into the low-end market with a truly budget phone, sacrificing average selling prices and profit margins, were erased at yesterday’s product launch in Cupertino, Calif.
The iPhone 5C, offered in an array of bright colors, will cost retailers at least $550, which was a surprise to Wall Street and consumers, who expected the company to reveal a phone that would cost as little as $300.
Some price predictions topped out at only $500, and Apple even blew past those.
It turned out the “C” in iPhone 5C does not stand for cheap.
Customers can get a 5C for a subsidized $99 when inking a two-year contract.
The strategy is typical Apple, and was executed in such a way to preserve profit margins, which on iPhones at one point approached an astounding 60 percent.
“The iPhone 5C is at a much higher price than we expected,” Gartner researcher Carolina Milanesi said. “This is Apple through and through.”
While the higher-than-expected 5C price will protect margins, it did rattle the nerves of some investors — who bid down shares 2.3 percent, to $494.64.
The fear is that the phone is expensive compared with rival handsets, especially outside the US where phones are not subsidized, and will thus limit sales.
Apple Chief Executive Tim Cook is known for his product-line expertise, and ascended to Steve Jobs’ position after serving as chief operating officer, the master of Apple’s supply chain.
The iPhone 5C plan is yet another example of his wiles: Apple will discontinue the iPhone 5, which in past updates would have been discounted to a $100 subsidized price, and will only offer the 5C in that price range.
“The iPhone 5C is basically an iPhone 5 in a plastic case, so there are no compromises in experience that a user will get,” Milanesi said.
The 5C may offer the same user experience, but its plastic case will keep Apple’s production costs down.
The iPhone 5 was the most difficult phone to make due to the intricate design, which was a pain for Foxconn, Apple’s manufacturing partner.
Apple’s profits could also be buoyed by the fact that the production of the luxury iPhone line is now running smoothly after a year to perfect, and that the older model was replaced with an easier-to-make plastic version, analyst Colin Gillis of BGC Partners.
The average selling price of iPhones has been coming down — to below $600 — over the past few quarters because of the less expensive older models, like the 4 and 4S, that eat into sales of the latest iPhones.
Now, Apple is set to offer the iPhone 4S at the lowest price, free with a two-year contract.
Apple also released its new highest-end smartphone, the iPhone 5S, in a gold-colored model to lure consumers in a similar manner.