Apple falls on disappointment in new handsets
Shares close at month low as analysts criticise price points, lack of innovation
Apple Inc shares dived 5.4% on the Nasdaq exchange yesterday to close at a month-low $467.71 after at least three brokerages downgraded their ratings on the stock amid disappointment in the newly launched iPhone handsets, Reuters reported.
Analysts were underwhelmed by the lack of new features in the premium iPhone 5S and criticised the price of the iPhone 5C - intended as a budget model - as too high to compete in emerging markets.
Commentators considered the fingerprint scanning technology of the 5S as the only new feature of note and doubted it would be enough to attract consumers in the all-but-saturated premium smartphone segment.
"There was nothing transformational announced. It has the fingerprint scan and new colours, but bigger features, like different screen sizes, don't seem to be at the ready," said Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott.
"This was less than expected from a company that has a reputation for surprising with a killer product or strategy."
The 5C model, while plastic, has a steel frame and much of the inner workings of the iPhone 5 and many features from the 5S, including the reworked iOS 7. Reuters reported that the 5C would sell for an unsubsidised price of $730 in China - around double the cost of mid-tier offerings from market rivals such as Huawei and Samsung, and more than the average monthly urban income in China. Low-end vendors such as Xiaomi have models that sell for as little as $100.
"We worry that Apple's inability [or] unwillingness to come out with a low-priced offering for emerging markets nearly ensures that the company will continue to be an overall share loser in the smartphone market until it chooses to address the low end," Sanford C Bernstein analysts said in a note.
Apple launched the new handsets in China, the world's largest smartphone market, nine hours after their US debut, leading industry observers to suspect the US firm would announce a distribution deal with China Mobile, which would expose the iPhone range to 740m subscribers. However, the deal has yet to be announced.
China is Apple's second-largest market after the US, but it slipped to number seven, in the second quarter. In a poll conducted by Web portal Sina.com, only 2.6% of 35,000 surveyed Chinese consumers said they would consider buying the 5C.
The price points announced by Apple show a focus on margins, rather than unit shipments as the cost of building iPhones has fallen and remains below that of Samsung's Galaxy range. The iPhone 5C's component cost comes to $165, 17% lower than the iPhone 5's $199 and 30% lower than the $236 it costs Samsung to build a Galaxy S4, according to IHS iSuppli estimates.
These figures show clear room for price drops if Apple deems it necessary, but the Cupertino company has long been viewed by analysts as strongly focused on the premium image of its brand and may resist the scale of price drop necessary to secure a strong following in emerging markets.
"Rather than offer attractive pricing for consumers, and move the iPhone 5C into a new and growing price segment, Apple retained a premium pricing strategy in targeting the $400-800 smartphone segment," Credit Suisse analyst Kulbinder Garcha wrote in a note.
"This segment is not forecast to see meaningful growth long term. This decision, at the margin, is good for profitability but not growth."
Apple's second-quarter net profit fell 22% as gross margins plunged below 37% from more than 42% in Q2 2012. Garcha forecast the company's share of the global smartphone market - which Samsung leads - would slide to 15.5% this year and 13.1% next year, from 18.1% in 2012.