iPhone 5c could spell serious trouble for Apple

iPhone 5c Sales

The first projections covering iPhone 5c and iPhone 5s launch-week sales are in — and they seem to indicate that Apple’s worries about cannibalization are valid. Citi Research estimates that Apple will sell 4.5 million iPhone 5c units and 3.2 million iPhone 5s units between pre-sales and the upcoming opening weekend. If these numbers are in the ballpark, they imply that consumers went for the cheaper option in a big way even though the price differential is a slim $100 on contract, and Apple went to great lengths to stress how the 5s is superior to the 5c. As we head towards the Christmas season, the gap is likely to widen further. The Christmas period in North America and Western Europe is defined by handset sales tilting towards cheaper, more basic models as people buy “sensible” gifts for their kids and inamoratas.

If U.S. consumers tilt this strongly towards the cheaper option even with only a slight price gap, it is clear that a truly affordable iPhone would have triggered a stampede. A model coming free with a contract and costing $425 in retail might have easily sold between 100% and 200% more than the iPhone 5s. In this narrow sense, Apple’s defensive decision to price the 5c so high is understandable. But this also means that at least for the moment, Apple has run out of ways to make its flagship model truly compelling. The fingerprint sensor may have dazzled early reviewers, but it might not be enough to persuade most mainstream consumers to opt for the most expensive iPhone, even in affluent America.

Based on conversations with two Indian industry sources, it looks like the iPhone 5c is now expected to debut in India close to the nosebleed level of 30,000 rupees. This would be nearly identical to the launch price of the Samsung Galaxy Mega smartphone with its 6.3 inch display. Budget smartphones Samsung Galaxy S Duos and Nokia Lumia 520 cost about 70% less in India.

So it seems that Apple opted to launch the cheaper iPhone… well, why? To cannibalize U.S. sales of the pricier model, yet get priced out of Asia and Latin America? What was the point of the 5c, the world’s most expensive value model? It’s hard to see Apple making this move that is so weirdly blurry under Steve Jobs. He made some big blunders, but muddled compromises were not his bane. Apple’s 10% share price tumble since the 5c was announced shows how deep Wall Street’s concern about Tim Cook now runs.

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