Apple renews focus on China with iPhone 5c launch

CUPERTINO, Calif. — Whether the "c" in iPhone 5c stands for color or China, the launch of a plastic cellphone marks one of the biggest strategic shifts for Apple since the company began the smartphone revolution six years ago.

Though the announcements made Tuesday at Apple's headquarters were relatively modest in scale, the tech giant seemed to be signaling that it was intent on recapturing lost momentum in China. Although a rumored deal with that nation's largest carrier was not announced at the event, analysts are expecting it to be confirmed soon, possibly at a separate media event being held in Beijing on Wednesday.


Still, investors and analysts expressed surprise that Apple's China efforts weren't more aggressive, saying the iPhone 5c was priced much higher than expected. As much as Apple may be deviating from its classic playbook, it remains unclear how much these efforts will help the company gain ground in emerging markets and with first-time smartphone buyers.

"I think we were all expecting a lower price point on the 5c, that it was going to be more about expanding Apple's market share in emerging markets," said Charles Golvin, a Forrester analyst. "And Apple didn't go down that road. They're still maintaining their position that Apple is a premium brand, people need to pay extra to get that experience."

The 90-minute event took place at Apple's Cupertino, Calif., headquarters, a much smaller venue than the cavernous Yerba Buena Center in San Francisco, where last year's iPhone 5 debut was held.

Despite lower expectations for the event, shareholders signaled their disappointment by driving Apple's stock down $11.53, or 2.28%, to $494.64.

Observers were watching Tuesday's event for clear signs that Apple was making moves to be more competitive in China, the world's largest smartphone market.

China is Apple's third-largest market. But after seeing some encouraging signs there, Apple reported that its "greater China" revenue (which includes Hong Kong and Taiwan) fell 14% in its most recent quarter from the same period a year earlier. It was down a whopping 43% from the previous quarter.

Rumors before the announcements held that the iPhone 5c was  the solution: a cheaper smartphone with a plastic casing that would be less expensive in overseas markets where carriers don't tend to subsidize the cost of smartphones.

Many of the whispers about the iPhone 5c proved accurate. It will come in five colors with plastic cases reinforced inside by a steel frame. In a video at the event, Apple design guru Jonathan Ive called the phone "unapologetically plastic." Still, analysts noted that the phone does not look or feel cheap.

And indeed, it isn't. When the iPhone 5c becomes available for pre-ordering Friday, consumers will be able to buy it for as little as $99 with a two-year contract. With no contract, the iPhone 5c starts at $549.

Another unusual aspect of Tuesday's event was the decision to unveil two new iPhones.

The iPhone 5s unveiled Tuesday will start at $199 with a contract and $649 with no contract. The iPhone 4s will become the low-cost option, offered free by many U.S. carriers with a contract and starting at $450 without a contract.

Apple will no longer sell the iPhone 4 or iPhone 5.

"Apple is never going to be the cheap option," said Carl Howe, vice president of research at Yankee Group. "In this case, they've certainly given themselves some room to lower the prices."

Of course, if Apple seals a deal with China Mobile, investors and analyst can be expected to cheer. China Mobile is seven times as large as Verizon Wireless with 740 million customers, and any partnership could supercharge Apple's slowing growth.


Absent a radically cheaper phone, Apple is making other gestures toward the China market. For the first time, the new iPhones will begin selling in China the same time as in the U.S. The new phones will run on a wider range of networks, something important to international markets. And the new gold-colored iPhone 5s is expected to be a popular choice in China.

The new flagship iPhone 5s comes with a faster processor, a better camera and a fingerprint sensor that will enable users to unlock their phones and make iTunes and App Store purchases with the press of a finger.

The 5s and 5c will begin selling Sept. 20, although the 5c can be pre-ordered starting Friday.

Apple continues to lead the U.S. smartphone market but has lost share overseas to smartphones running Google's Android operating system. Even with the new features announced Tuesday, analysts were quick to point out that some existing Android devices are way ahead of the iPhone 5s.

Samsung's Galaxy S4, for instance, has eye-tracking capabilities, gesture control, a 5-inch full HD screen and a 13-megapixel rear-facing camera.

Apple Chief Executive Tim Cook addressed those concerns at Tuesday's event, saying the company thinks carefully about "what experience people should have."

"We don't just pack in feature after feature," he said.

Apple did make a major concession to its users, announcing that it would give its top mobile productivity apps free to those who buy new devices running its iOS operating system.

The Pages, Numbers, Keynote, iPhoto and iMovie apps will be available to customers who buy the latest versions of Apple's mobile devices. Currently Pages, Numbers and Keynote are available for download for $9.99, and iPhoto and iMovie cost $4.99.

Apple's move comes in response to Google, which offers its suite of productivity apps at no cost on the Web and on smartphones through the Google Drive app, and Microsoft, known for its popular business-friendly software.

The company also confirmed that the radically redesigned iOS 7 will be available for download Sept. 18. The new mobile operating system was unveiled over the summer at Apple's developers conference.

The new software, iOS 7, represents the most dramatic change Apple has made to its mobile platform since it launched alongside the original iPhone in 2007. Several analysts noted that downloading iOS 7 will make current users feel as if they just upgraded to a whole new phone, leading some to wonder whether it could cause some consumers to delay buying a new phone.

"The iOS 7 upgrade is going to be a big deal. In a way, it's going to actually deter some of the hardware upgrades," said Bob O'Donnell, a vice president at research firm IDC.

Other analysts said they've learned not to count Apple out, especially when it comes to smartphones. Each new version, no matter how praised or criticized, has set records for sales.

With two models launching in far more markets than in past years, historical comparisons will be difficult. But analysts will be watching closely Sept. 20 to see whether the new models generate the expected enthusiasm among newbies and hard-core loyalists.

"I've learned my lesson about being skeptical," Forrester analyst Golvin said. "And I'm going to say I think that they're going to sell pretty darn well."


O'Brien reported from Cupertino, Chang from Los Angeles.

Times staff writer Salvador Rodriguez contributed to this report.