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New iPhone 5C theory: Apple missed out on China's 'Golden Week' carrier subsidies

NPD DisplaySearch analysts forward theory that iPhone 5C sold poorly in China during national holiday

October 18, 2013 05:02 PM ET

Computerworld - Apple mistimed the launch of the iPhone 5C and priced the smartphone too high, missing out on aggressive subsidies offered by Chinese mobile carriers during an important holiday, a research firm said today.

On Friday, NPD DisplaySearch, a researcher that tracks display orders from smartphone, tablet and PC makers, became the latest to posit a poor reception for the iPhone 5C, the $549 smartphone Apple launched more than a month ago alongside the flagship iPhone 5S.

"Our latest channel checks confirm that Apple indeed has cut back 5C production by 35% and increased 5S production by 75%," said Tina Teng and Shawn Lee, two senior analysts with DisplaySearch, in a post to their firm's blog.

Earlier this week, media outlets such as the Wall Street Journal and the Reuters news service said Apple had cut orders for the iPhone 5C by between a fifth and a third, respectively.

The production cuts, argued some on Wall Street, proved that Apple misjudged the appeal of the lower-priced iPhone 5C. Others, however, countered, saying it was historically a waste of time to judge sales or product acceptance from production numbers because there were too many unknowns.

Teng and Lee of DisplaySearch pointed out that Chinese mobile carriers offered aggressive smartphone subsidies during "Golden Week," a multi-day national holiday that began Oct. 1, the anniversary of the 1949 founding of the Communist People's Republic of China.

Carriers budget for Golden Week sales long in advance, said Teng in an interview today, and with the iPhone 5C's Sept. 10 debut and price disclosure, the Cupertino, Calif. missed the boat: Carriers had already made their decisions on how much to offer consumers in new phone subsidies for the various brands and models they wanted to promote.

The actual timing was secondary, however, to Apple's insistence on pricing the iPhone 5C at a relatively high level.

Before its launch, many analysts expected that Apple would offer the 5C at a dramatically cheaper price, perhaps as low as $350 unsubsidized. Instead, Apple substituted the iPhone 5C into the middle of its three-tier sales strategy for the superseded iPhone 5, selling the new plastic-covered phone for $549 sans subsidy. U.S. carriers that offered subsidies sold it for $99 with a two-year contract, half the price of the iPhone 5S.

That price point wasn't what Chinese carriers had hoped for, Teng said.

"The carriers were looking to get more subscribers through that whole week," said Teng of Golden Week. "But because Apple wanted to sell the iPhone 5C at the same profit margin and because the carriers didn't want all the eggs in the same basket, they weren't willing to give even more subsidies to Apple's devices."



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