As Apple’s stock got hammered Wednesday morning, Wall Street was clearly frustrated the company didn’t unveil the expected “cheap” iPhone.
It’s unclear how expectations the company was building such a phone got so out of hand.
Blogger and venture capitalist MG Siegler blamed reporters for pushing the idea the iPhone 5c was supposed to be a cheaper phone:
“It appears now that this was always misdirection triggered by clueless reporting. Oh, Apple is working on a new, plastic iPhone? It must be a cheap one to sell in the rest of the world. Nope, it mustn’t,” he wrote.
Perhaps. But analysts and investors have been clamoring for such a phone for months now. They are concerned Apple is ceding too much ground overseas and in emerging markets to Samsung’s Android phone.
Indeed, at least four analysts had lowered their ratings of Apple on Wednesday morning, at least in part because of the pricing of the iPhone 5c: Credit Suisse, Piper Jaffray, UBS and Bank of America Merril Lynch.
Their disappointment that the iPhone 5c was not the cheap phone they expected also was clear in notes sent to clients Wednesday morning. Here’s a sample:
Toni Sacconaghi of BernsteinResearch: “Overall, we are disappointed with Apple’s announcement.... More importantly, we worry that Apple’s inability/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.”
Will Power of Baird Equity Research: “With Apple pricing the iPhone 5C selling at $550 unsubsidized, we are now less concerned with potential cannibalization and margin risk. However, the device pricing also remains well above what’s likely needed to significantly penetrate developing markets smartphone growth.”
Patrick Moorhead of Moor Insights and Strategy: “Apple is positioned as a very premium brand in China, priced out of reach of most. The new iPhone 5c makes Apple more competitive, but not as much as many expected. A $100 drop is significant as China demand is elastic, so I expect Apple to do better, but not better than Samsung.”
Walter Piecyk of BTIG Research: “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. 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. However, we believe Apple is foregoing a valuable and relatively easy way to return to earnings growth. The real question is whether Apple plans to ever go after these markets or rather just remain a high-end phone maker.”
Ben A. Reitzes of Barclays: “Surprisingly, the iPhone 5C will be priced in line with its predecessor (the 4S) with storage capacities of 16GB for $99, 32GB for $199. An unlocked and contract-free 5C is available for $549 for 16GB of storage and $649 for 32GB of storage. The pricing of the 5C could be considered negative since it is unlikely to stimulate upside to unit sales, but it also could help margins stay higher than expected. We look forward to hearing more details about how the 5C will sell in China and other emerging markets, but at this point, we don’t expect a large difference in terms of off-contract prices.”
Gene Munster of Piper Jaffray: “While overall we were wrong and disappointed with the pricing of the iPhone 5C and timing of China Mobile, we note that the theme of returning to growth in CY14 remains as we expect margins to stabilize under the new product offerings. The pricing on the 5C replaces the middle tier phone at $549 unlocked instead of acting as a low-end ~$300 phone as we had expected. Since we had previously expected a true offering for the lower end market in our model, we are adjusting our expectations to remove the lower priced model with the net result being lower revenue and EPS expectations for CY14/15, but higher margins.”