Apple Falls on Concern About iPhone Pricing

12:26 PM, Sep 11, 2013   |    comments
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Alistair Barr, USA TODAY

SAN FRANCISCO -- Apple shares dropped more than 5% in afternoon trading Wednesday on concern the company priced its new iPhone 5c too high to grab enough of the fast-growing emerging market smartphone sector.

Apple unveiled two new iPhones for the first time on Tuesday -- a high-end iPhone 5s with cutting-edge technology including a finger print sensor, and the 5c, which starts at $99 with a two-year contract but costs $549 without.

"While the iPhone 5S/5C specifications and timing were consistent with our expectations, the 5C was priced higher than our expectations," Michael Walkley, an analyst at Canaccord Genuity, wrote in a note to investors.

Apple has lost ground to Samsung and other rivals which make cheaper smartphones based on Google's Android operating system. This is especially true in faster-growing emerging and developing countries such as China, Brazil and India, where consumers typically buy a phone without a contract and sign up to pre-paid monthly wireless plans.

"The pricing on the iPhone 5c is simply not low enough to adequately address the significant global growth opportunity that we believe exists with unsubsidized prepaid customers that have not yet bought a smartphone," Walter Piecyk, an analyst at BTIG, wrote in a note to clients.

"To be clear, Apple never indicated that it was their intention to attack this market with the iPhone 5C and the global opportunity is still in its early stages," he added. "However, we believe Apple is foregoing a valuable and relatively easy way to return to earnings growth.

Apple shares fell 5.6% to $465.96 in afternoon trading Wednesday.

The $549 price tag for the iPhone 5c in the US will likely translate into a higher price in some other countries because of import taxes. In comparison, the leading smartphone sold by Vivo, the largest wireless operator in Brazil, is under $200, Piecyk noted.

"Does Apple have to hit a $200 price point in order to establish a presence in Brazil or other emerging markets? Of course not. But the $550 price tag plus tax is likely to have limited appeal in markets like Brazil and China," the analyst wrote.

 

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