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The great 'iPhone 5C is a failure' freakout

John Cox | March 19, 2014
The iPhone 5C is six months old in March. It's been declared a disaster, a dud, a fiasco and a flop. The reports of its death have been greatly exaggerated. Here's why.

The 5c adopts almost all of the iPhone 5 hardware features and innovations, including the in-cell touch, the display, the Lightning connector, rear-facing camera, and the A6 processor. But these are set in a plastic body instead of machined aluminum. The 5c also adopts some features found in the 5s, such as the front facing FaceTime camera, and the Wi-Fi, cellular and Bluetooth hardware. And it's a full-blown member of the Apple ecosystem, running iOS 7, the latest firmware. The approach let Apple leverage economies of scale, cut costs and offer the 5c at the price point it wanted, according to Lal Shimpi.

The 5c's pricing is the key to its purpose, he says: $99 with 16GB, $199 with 32GB, both with a two-year contract. As Lal Shimpi notes, that's exactly the price one would expect for a discounted iPhone 5.  "Anyone expecting the 5c to be Apple's solution for volume in China or somehow compete in the feature phone space will be disappointed," he says, as many indeed were. "At the same time, anyone who is familiar with Apple's business will know that a low cost volume play was never in the cards."~~

Tim Cook speaks, few listen
Cook's comments in the January earnings call were widely cited as evidence that the 5c  was at best a disappointment and at worst a disaster. In almost every case, he was misunderstood or misinterpreted or both.

Cook was asked by Toni Sacconaghi, of Sanford C. Bernstein to explain why Apple's smartphone growth isn't matching the growth rate of the overall market. Here's the nub of his question: "[W]hat is different about the smartphone market that is not allowing you to hold or gain unit share despite apparently having the best product? Do you propose to do anything differently going forward because I think it's great to have an aspiration to make the grade with the best products but I think that's in the spirit of ultimately growing at least in line or faster than the market and that doesn't appear to be happening?"

Cook's reply is quite lengthy, but there are two key parts. First, "If you look at what we did this year, we announced two iPhones for the first time rather than one and looking at last quarter, if you looked at our sell-throughs not the sell-in but the sell-through of what I will just call our entry phone or mid-phone [i.e. iPhone 5c] and our top part [high-end?] of the 5s. All of those grew year-over-year versus the phones that were in those categories previously."

Sell-in refers to a manufacturer's sales to a channel, for Apple this channel is carriers and retailers; sell-through refers to the sale made by the carrier or retailer to an end user. Sell-through is one of the many numbers Cook watches closely, as he mentions in a recent Wall Street Journal interview. "We always look at the underlying health of our businesses," he said. "And what I mean by that is we look at sell-through because that's what's most important to us. About 70% of our business is indirect, 30% is direct. In that 70%, we look at great detail of what's selling through. So when you look at the sell through, the iPhone [in Oct-Dec 2014 quarter] was actually higher than the sell-in so I care more about that."


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