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iPhone 5C production cut rumors 'tell us nothing'

Analyst scoffs at conclusions that iPhone 5C is selling poorly because Apple's contractors have scaled back production for the fourth quarter

October 16, 2013 11:29 AM ET

Computerworld - Apple has cut orders for the iPhone 5C by between a fifth and a third, Asian sources have told the Wall Street Journal and the Reuters news service, leading some financial analysts to again argue that the company misjudged the appeal of the lower-priced smartphone.

An independent industry analyst, however, dismissed the conclusions, saying that there were too many variables in Apple's supply equation to make judgments this early in the iPhone 5C's sales cycle.

According to published reports, Apple's iPhone 5C assemblers, Taiwan's Pegatron and Hon Hai Precision Industry -- the latter better known as Foxconn -- have been told to reduce orders for the fourth quarter by 20% and 33%, respectively.

Apple launched the iPhone 5C and the flagship iPhone 5S on Sept. 10, and started selling the two models 10 days later. Before the debut of the 5C, many analysts, especially those from Wall Street, expected that Apple would offer the smartphone at a dramatically cheaper price, perhaps as low as $350 unsubsidized.

Instead, Apple substituted the iPhone 5C in the middle of its three-tier sales strategy for the superseded iPhone 5, selling the new plastic-covered phone for $549 sans subsidy. Carriers that offered subsidies sold it for $99 with a two-year contract, half the price of the iPhone 5S.

Because Apple's decision didn't match their expectations, investors and investment analysts have continued to ding the company, arguing that it was not adequately reacting to the explosion in sales of inexpensive Android smartphones, particularly in Asia, and risked losing more market share to Google's mobile operating system.

Financial analysts said as much today, claiming that the news confirmed lower-than-anticipated demand and a mistake by Apple in pricing the iPhone 5C.

Ridiculous, countered Benedict Evans, an analyst who focuses on mobile technology and often writes for Enders Analysis, a London-based research firm.

"This tells us nothing, even presuming it is true," said Evans of the reports. "We don't know Apple's plan, their volumes, their inventory or what other suppliers they have. There are too many moving parts to draw any conclusions at all."

On Twitter last weekend, Evans chided those who jumped to conclusions based on production reports. "After the past couple of years, people really ought to have learned that supply chain production volume rumors for iPhones are worthless," he wrote on Saturday after several Wall Street analysts claimed Apple had scaled back iPhone 5C orders. "My point is that the 5C could be a total flop but supply chain rumors wouldn't tell us either way. Too many variables," he added in another tweet.

"We saw the same thing a year ago: Rumors of volume cuts that didn't show up in the quarterly results," Evans said today in an email.

While Apple touted a three-day total of 9 million iPhones sold the opening weekend -- an 80% increase over the same period in 2012 -- it has not broken down sales by model. The company regularly declines to provide such details, citing the competitive disadvantage of doing so.

When it holds its third-quarter earnings call on Oct. 28, it may update iPhone sales since the 5S and 5C launches.

Apple has extensively promoted the iPhone 5C -- its national television advertising campaign is primarily for that smartphone -- and seemingly has plenty on hand: On Wednesday, its U.S. online store said orders would ship within 24 hours. Meanwhile, orders for the iPhone 5S will ship in two to three weeks, Apple's e-store stated.

The talk about production cuts has not affected Apple's stock price, which in early trading today was up 0.3% to just over $500.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at Twitter@gkeizer, or subscribe to Gregg's RSS feed Keizer RSS. His email address is gkeizer@computerworld.com.

Read more about Smartphones in Computerworld's Smartphones Topic Center.



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