According to one prominent analyst, investors should ignore supply chain noise about the iPhone 5C and trust that Apple made the right move in maintaining its margins. Maynard Um of Wells Fargo Securities believes Apple’s pricing strategy with the iPhone 5C, making it the company’s mid-range phone with a $99 on-contract price, will pay off in the long run. He noted that last year’s mid-range smartphone, the iPhone 4S, saw its sales ramp up heading into November and December, as more casual buyers showed interest during the holiday shopping season.
Some market watchers, Apple should have priced the iPhone 5C more aggressively in an attempt to take market share away from low-end smartphones running Google’s Android platform. Um on the other hand believes that doing so would have been too risky of a move. If Apple had taken lower margins and hoped for unit volumes to offset, there would have been “no guarantee of price elasticity driving volumes,” according to Um. In addition, a cheaper iPhone 5C may have potentially resulted in even greater margin pressures as Apple transitioned to its next models in 2014. Um mentioned the following regarding he matter:
We believe the certainty was the right choice and would not necessarily discount demand yet.
Ironically, Apple CEO, Tim Cook, warned analysts earlier this year stating that reading too much into the supply chain data can be a critical mistake. He said the following regarding the matter:
The supply chain is very complex, and we obviously have multiple sources for things. Even if a particular data point were factual, it would be impossible to interpret that data point as to what it meant for our business.
As has been the case in the industry for years, third-party resellers derive profits from carrier 'finder's fees,' which can amount to $250 depending on a number of factors, including whether it's a new contract or an upgrade. Thus, a price 'drop' is not necessarily a reflection of materially weak demand, but, rather, a business model strategy to drive volumes.
Source: Wells Fargo Securities via AppleInsider