Is Apple At Innovation's End?


The most awaited next phone from Apple was announced yesterday at Cupertino, headquarters of Apple Inc. (NASDAQ: AAPL). The company held a special event to launch its two new phones iPhone 5S and iPhone 5C, apart from the launch of its latest operating system, iOS-7. The company did bring out some interesting new features in the 5S. There are a few new additions; if you care for a fingerprint sensor in your phone, iPhone 5S has it. The improved camera and optics powered for the first time by a new 64-bit A7 chip looks impressive but way behind competitors. All this is making people ask, where is the innovation Mr. Apple?

When you run out of product innovation you turn to financial innovation! One such decision from the company was the replacement of iPhone 5 with the new phones.  This means that there will be no lower priced iPhone 5 in the markets once the new phones are launched. This is in view of the fact that the iPhone 5 sales had taken a hit in the June 2013 ending quarter as iPhone 4 sold more units than expected. The jump in iPhone 4 sales was due to the price drops the company announced following the launch of iPhone 5. This resulted in the company taking a hit to its traditionally high profit margins. The operating margins for Q2 2013 dropped to 26% from the year ago margins of 33%. The new policy to replace the older iPhone 5 by the new phones could be in order to avoid further margin drops. The company hopes to sell more of its iPhone 5s devices in the absence of the older (iPhone 5) model from the market. This decision is a huge gamble from the Cupertino hardware giant.

Now let’s look at the iPhone 5c, Apple’s so called cheap phone (btw as per Apple, the C in iPhone 5C is not for cheap but colour). This one was supposed to be the volume generator to make up for the profitability drops the company is seeing. One look at the price and we think Apple has got it wrong with its pricing strategy for the iPhone 5c. This was supposed to be the phone for emerging markets! The iPhone 5c has been priced at $549 for an off-contract purchase. That’s not cheap by any standards. We have no idea what the folks at Apple mean by cheap, but $550 isn’t what we call cheap. The 5C has no new features as its USP and neither is it ‘really’ cheap. We wonder what will make it sell in the ‘emerging markets.’ The most awaited product of the year might soon become the biggest pricing mistake of Apple, we will know in a matter of a few days. However the positive impact of the high pricing of the iPhone 5C may be customers opting to buy the 5S, which will only feel a tad costlier on features to price comparison against the 5C. The biggest question for Apple will be whether customers will continue to buy its ‘even cheaper’ iPhone 4 or will it be able to sell the iPhone 5s in large numbers. The iPhone 5C does not figure anywhere in the game at the current price levels. The AAPL stock fell by 2.23% in yesterday’s trading session and closed the day at $494.64.

To see Apple’s latest stock price movement, click here (NASDAQ: AAPL)

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Disclaimer: We do not hold any stake in the aforesaid stocks. For detailed disclaimer, please click here.

Virendra Singh Chauhan Virendra Singh Chauhan   on Amigobulls :

Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice.

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Comments on this article and AAPL stock

WW Evans
Possibly, that's cheap according to Apple's standards. The company yet again proves apples can't be bought at the price of oranges!
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The consumers might soon prove that the company can't keep selling the same old 'Apples' at a premium price when the competition is coming out with similar products at far lower prices.
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