Apple’s iPhone case giveaway could cut into other case suppliers’ sales
By giving out free cases for its iPhone 4, Apple Inc. hoped to smooth over troubles with unhappy customers.
But it may annoy a different group: the companies that make the various hard, soft, colorful, arty, sleek, fat and other kinds of enclosures bought by users to personalize their phones.
With Apple giving away its own cases, analysts say, there will be less demand for those offered by third-party suppliers.
At least two case manufacturers contacted by The Times acknowledged that Apple’s giveaway could cut into sales. They declined to comment publicly, saying they did not want to sour their relationships with Apple.
That’s not surprising, because manufacturers of cases and other Apple accessories count on getting shelf space in Apple’s retail stores.
But these companies could end up being among the victims of Antennagate, or the iPhone’s loss of signal that Apple is trying to fix with its giveaway.
“There is a whole ecosystem of guys who make add-ons for iPhones and Apple products,” said Mark McKechnie, an analyst at Gleacher & Co. “Some of these companies live off of Apple, essentially. If Apple kicks in the refund money and gives away its own cases, it could cut into the sales of a lot of different companies. There’s not really a precedent for this, so we’ll have to see how it plays out.”
Following through on a pledge this month, Apple on Friday began offering a downloadable application that lets iPhone 4 owners choose from among several cases. Customers have until Sept. 30 to ask for a free case.
Apple is also giving refunds to customers who already bought the company’s Bumper case.
A phone cover prevents the electrically conductive skin of a finger from interfering with the signal.
The case giveaway may cost Apple, which has sold nearly 4 million iPhone 4s since the handset’s debut last month, as much as $175 million, according to Peter Oppenheimer, the company’s chief financial officer.
Accessory makers could prevent Apple from biting too deeply into their sales if their products are different enough from what Apple is giving away, said Jack Plunkett of Plunkett Research.
“A lot of phone accessories are impulse purchases. You grab something when you’re in the store or you grab something for the fashion aspect of it,” Plunkett said. “And for the fashionistas, they want a specific case and they’ll still go out and buy that. There will be of course some who stick with the free case Apple gives them, but those people who want to stand out will still want to stand out and not have the same case as everyone else.”
Case makers who were willing to discuss the giveaway said they were focusing on offering more fully featured cases to differentiate their products from Apple’s Bumpers.
ElementCase, which makes a high-end $80 protector called Vapor, struggled with supplies because of a lack of test models from Apple. Customers who ordered a Vapor say they were using free cases until ElementCase could fill their orders, spokesman Mark Lindsey said in an e-mail.
The case giveaway “hasn’t impacted our volume of sales,” Lindsey said. “If anything, it has increased our appeal as a premium contender in the iPhone accessory market.”
“The Apple Bumper is a weak competitor, and the other free cases Apple is offering are all simple rubber or plastic designs,” Lindsey said.
OtterBox’s Defender is composed of three layers of materials to protect from drops and scratches. It costs $50. “While I can’t speak to the features the Apple Bumpers offer, OtterBox cases undergo rigorous testing by industry-recognized testing facilities,” a spokeswoman said.
Various companies that make iPhone cases expressed discontent with the surprise no-cost competitors but declined to speak on the record so as not to jeopardize their relationships with Apple.
Relationships between Apple and case makers were already strained when the gadget manufacturer began selling its own cover for the iPad and then a rubber Bumper for the iPhone 4.
Demand for Apple’s $39 iPad case has far outpaced supply. Apple was selling the iPhone 4 Bumpers, which have been criticized for providing little protection from drops, for $29 before deciding to give them away.
Phone cases, usually made from fabric, plastic or rubber, carry high profit margins and sales potential to a large segment of customers looking to protect or accessorize their digital companions.
Apple can afford to take a $175-million hit to give away iPhone cases, Plunkett said. The market for iPhone cases, which is probably in the millions but is difficult to quantify given how many companies make such products, might not be so fortunate, he said.
“Apple right now isn’t too worried about what sort of impact this all will have on the small company making an iPhone case,” Plunkett said. “This whole thing has been an immense embarrassment to Apple, and their biggest goal here is to try and make us all forget about this as quickly as possible so they don’t have additional costs in terms of loss in brand image or market share.”
