Apple embraces the ‘new normal’
APPLE is taking more cues from the competition. In a break with the past, instead of one iPhone a year, it has unveiled two models, including a lower-cost iPhone 5C in five colours.
APPLE, the company that pioneered the era of mobile touch-based computing with the iPhone’s 2007 debut, is taking more cues from the competition.
In a break with the past, instead of introducing one iPhone a year, Apple on Tuesday unveiled two new models. The lower-cost iPhone 5C comes in five different colours.
Apple also released a high-end iPhone 5S with fingerprint-security features, a speedier processor and better camera, which will be available in three colours.
The devices underscore the “new normal” in the $280bn smartphone industry, as the novelty of internet-connected handsets wears off and the gadgets share many of the same basic features. Facing increasing competition from rivals such as Samsung that offer cellphones in different styles and prices, Apple CEO Tim Cook is following suit and expanding his company’s own lineup.
“We’ve gotten through the first phase of the industry,” said cellphone industry analyst at Enders Analysis, Benedict Evans. “The original vision has been built out. We’re now in a market where Apple is fighting on more equal terms.”
Apple’s strategy shift includes what is essentially a repackaging of last year’s iPhone 5 in a new polycarbonate casing that comes in blue, pink, green, yellow and white to become the iPhone 5C. The company is not pricing the 5C as cheaply as competitors’ handsets, with the phone costing $549 in the US and up, without a twoyear contract, according to Apple’s US website. This shows it is unwilling to trade its industryleading profit margins for increased market share.
In German trading yesterday, Apple fell 2.7% to the equivalent of $481.49 in Frankfurt. The stock closed at $494.64 in New York after Tuesday’s announcement as investors expected a lower price for the iPhone 5C to appeal to more customers in emerging markets such as China.
“Nobody expected it to be this high,” said analyst at Wedge Partners Corporation Brian Blair, who attended the Apple event. “They are clearly saying we aren’t willing to go downstream.”
Even so, Apple is boosting its pool of potential customers. Apple said it was adding Japan’s largest carrier, NTT DoCoMo, and that it would have devices immediately available in China for the first time. The company is near a deal with China Mobile, the world’s largest carrier, people familiar with the plans have said.
The shift in iPhone strategy is a turnabout for Apple, which has long been the pacesetter in the smartphone market. After Apple co-founder Steve Jobs unveiled the iPhone in January 2007, he upended a market dominated by Nokia’s feature phones and Black- Berry’s keyboard handsets.
As the iPhone gained in popularity to become a pre-eminent computing device for consumers — catapulting Apple’s stock to make it the world’s most valuable company — Google pushed its Android software with Samsung, HTC and other handset manufacturers that soon produced touchscreen devices.
Each iPhone unveiling is critical for Apple because the smartphone accounts for about half its revenue. Tuesday’s event was the firm’s first major product debut since the iPad mini was introduced last year. Absent new gadgets, Apple’s growth has stagnated, with earnings falling last quarter.
Apple is responding with the new iPhones, which debuted in front of a crowd that included Apple board member and former US vice-president Al Gore, Yahoo CEO Marissa Mayer and Twitter co-founder Jack Dorsey. Musician Elvis Costello also played towards the end of the event.
The new iPhones will hit shops in the US and other countries on September 20. The iPhone 5S will come in white, black and gold and has a 64-bit chip that the company said will make it work twice as fast as the iPhone 5.
It will also have Touch ID fingerprint-sensor technology that is located on the phone’s “home” button, which people can use to unlock their phone and confirm purchases from iTunes and Apple’s app store.
A high off-contract price indicates Apple is still betting customers will pay more for the iPhone, said analyst at Forrester Research Sarah Rotman Epps. “They aren’t trying to compete for the bottom of the market,” she said, adding that Apple is keeping its strategy of appealing to the “well-off masses”.
Apple also revamped its mobile software with the introduction of iOS 7, which became available for free starting from yesterday. The overhaul includes new sounds, picture-sharing features, and an iTunes radio feature.
At the event, the company said 700-million iOS devices would be sold by next month. Apple added that its Siri digital assistant is “massively improved” and now draws information from Twitter and Wikipedia, among others. More new Apple products are expected this year in the run-up to the holiday shopping season. The firm is planning to introduce new iPads later this year, people familiar with the plans have said.
Reuters said Apple’s lowercost offering aroused concern the company was not being aggressive enough in its fight against Google’s market-dominating Android operating system.
“We worry 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,” said Sanford C Bernstein analysts in a note.
Still, Bernstein maintained its “outperform” rating on Apple’s stock, saying that it expected the new iPhones to have little effect on gross margins.
Nomura Equity Research analyst Stuart Jeffrey, who raised his price target for Apple shares to $480 from $420, said Apple may have ensured stable margins for the next couple of quarters by pricing the 5C at $99 with a contract and $549 without.
This was not enough for Bank of America Merrill Lynch and Credit Suisse. Both downgraded Apple’s stock to “neutral” from “buy” and “outperform”, respectively. A Credit Suisse analyst said Apple’s share of the smartphone market would be likely to fall to 15.5% this year from 18.1% last year.