Apple, Inc. (NASDAQ;AAPL) began sales of its latest iPhones on Sept.20, hoping that the strong demand for the new devices would help it to consolidate its position in the smartphone market.
The long queue at the US stores, after sales kicked off in Australia, Japan, China and Europe, blew-away the notion that Apple has been losing on the innovative front and pricing strategy, especially with its low cost iPhone 5C.
Apple priced the 16GB iPhone 5S at $199 with a two-year contract, or $649 without while the 5C costs $99 and $549, respectively. Virtually, the price difference between iPhone 5S and 5C is only $100, and that was the main worry for the Wall Street.
But, both the devices as well as the operating system iOS7 are getting positive reviews from all quarters. Walter Mossberg of The Wall Street Journal recommends iPhone 5s "for anyone looking for a premium, advanced smartphone." He calls the phone's Touch ID fingerprint sensor "a potentially game-changing hardware feature" and iOS 7 "a radically new operating system."
On iOS7, David Pogue of The New York Times, says, "The structure, layout and features represent some of Apple's best work." In his iPhone review, he calls iPhone 5c "a terrific phone," noting, "The price is right. It will sell like hot cakes."
Going by the review, Apple should taste success with its new products. The revamped operating system, fingerprint sensor and the 62-bit architecture, multiple colors should set the phones apart from the rest.
iOS 7 has a completely redesigned user interface and hundreds of new features, including Control Center, Notification Center, improved multitasking, AirDrop, enhanced Siri, and more. So far iOS7 downloads have been extremely strong, which is a leading indicator to suggest that iPhone 5C and 5S will also be extremely strong.
Meanwhile, iPhone 5C caters to younger audiences - bright colors, plastic and new age specific apps on AppStore will make this offering a success with kids 6 months and older to! young youths 25 years or less. This demographic has been under penetrated - iPhone 5C expands the market for iPhone and Apple.
"Another catalyst for 5C is that schools are starting to use iPads in the classrooms. Kids currently are given feature phone, iPhone 5C is probably going to put an end to feature phones for some kids," Global Equities Research analyst Trip Chowdhry wrote in a note to clients.
In iPhone 5S, the real innovation is 64bit OS. Apple has managed to do it without changing the form factor. The 64 bit system significantly enhances sound, video and image centric applications, such as gaming and mapping Apps. This assumes significance as games account for more than 50 percent of purchases on Apple App Store.
"Apple has at least 12 - 18 months lead over Android Ecosystem. To be successful, you need to have 64 bit CPU, 64 Bit OS, 64 bit compilers and 64 bit development tools...there is a lot of catching up to do for the Android Ecosystem," Chowdhry added.
Instead of just reducing the price on the iPhone 5 by $100 as it has done in previous launches, it introduced colors with the polycarbonate casing. The "old" iPhone 5 now looks like new technology for more price-conscious consumers while Apple enjoys a higher margin.
The 64-bit architecture, Touch ID fingerprint authentication, and improved camera show that innovation is not dead, and these features could be precursors to future products and services like Apple TV.
The potential of iOS 7 may be underappreciated. In terms of user experience, iOS 7 compared to iOS 6 is a bigger change than the 5S versus 5. Assuming iOS 7 is well received, it could attract Android users to the Apple ecosystem, another example of the benefit of vertical integration.
"As far as developed markets go, the announcement looks like a winner. Recall that last quarter, the US, UK, and Japan posted solid iPhone growth, suggesting there still are new users (and market share) to be gained," UBS analyst Steven Milunovich said in! a client! note.
In Japan, Apple has signed NTT DoCoMo, which should result in at least 5 million in iPhone unit sales in fiscal 2014, and China Mobile appears to be on the way. As a result, earnings estimates were flat to up following the introduction.
On the iPhone 5C, the clear message appears to be that Apple is about making the best products, will not compromise user experience and is worth the price. That doesn't mean its pricing strategy is like Ferrari's, The iPad mini is reasonably priced, and the iPod line had low entry-level prices, but it seems that the technology does not yet allow Apple to build $300-$400 phones that it is proud of.
5 Best Biotech Stocks To Own Right Now
Apple's brand value is huge and worth protecting. The brand is not so much based on a high price as it is user friendliness, which sometimes results in a premium price for a better experience. Its adds emphasize experience and feeling over specs.
"It could be that Apple is willing to stake out the high end and wait for the emerging global middle market to be able to afford its phones. While the 5C is too expensive for most developing markets, there still is an aspiration to own Apple products," Milunovich noted.
As one Chinese consumer put it to the LA Times, "The most important thing is the brand. The phones could be even more expensive and people would buy them."
Moreover, Apple has a remarkable recorded in creating and dominating new markets. The company might have enough confidence in coming offerings that it does not feel the need to chase lower-margin phone sales. Apple is bent is to innovate, not protect its low-end flank.
The bears may argue that Apple would be disrupted by low-priced Asian rivals, resulting in slowing revenue growth and margin pressure. However, Apple's history of success and its familiarity with disruptive innovation theory suggest it may not be so simple.
No comments:
Post a Comment