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iPhone 5S and 5C launch: markets wipe $30bn off Apple's value
Apple’s decision to launch a budget version of the iPhone was greeted with dismay on Wednesday by investors, who sent its shares sliding towards their biggest one day fall in eight months. More than $30bn was wiped off the value of the company.
Investors had believed Apple was poised for a land grab on China and emerging markets, but the hefty price tag on the 5C – which had been expected to be a markedly cheaper iPhone – will put it out of reach of many Chinese consumers and the next billion smartphone buyers around the world in the coming year.
Apple’s shares fell 6% the day after it unveiled two new models, the colourful 5C, and the high end 5S, which contains a fingerprint scanner to unlock the phone and make payments. At least four banks downgraded their recommendations on the stock, marking Apple to neutral.
Analysts dismissed the new phones as a “disappointment”. With a difference of just £80 between the two handsets – the 5C costs from £469 out of contract, while the 5S starts at £549 – the pricing strategy was described as a “head scratcher”.
The lack of a distribution deal with China Mobile, the world’s largest mobile phone network thanks to its many domestic customers, also caused consternation. Bank of America Merrill Lynch, which downgraded the stock from buy to neutral, said that even if a deal with China Mobile materialised, the lack of a budget phone would lead to poor sales. The bank had been hoping for 170m in sales from the network, and has revised that estimate down to 6m.
“Overall, we are disappointed with Apple’s announcement,” said Toni Sacconaghi, an analyst at Sanford C Bernstein. “Apple continues to risk being relegated to a high-end niche player, akin to its role in the PC market – a real shame, given its pronounced first mover advantage in smartphones. Additionally, high end smartphones are expected to have limited unit growth going forward, making revenue growth challenging.”
Those looking to buy a cheap iPhone will have to make do with the 4S, which will be free with a contract. Last year’s iPhone 5 has been discontinued. The 4S handset was released two years ago and its camera and processing power are inferior to those of cheaper models currently made by other brands including Samsung.
“By ignoring the mid-tier smartphone segment, Apple will continue to lose users to the Android ecosystem,” warned Credit Suisse analyst Kulbinder Garcha, after relegating the stock to neutral from outperform. He believes Apple’s smartphone market share could fall to 13% globally next year from 18%. “We remain disappointed with Apple’s decision to remain a premium priced smartphone vendor. This continues to competitively expose the company and limits growth,” he said.
A survey by ChinaDaily.com indicated only 2.6% of Chinese shoppers would consider purchasing the 5C at the price set by Apple. The device, described by Apple’s chief designer Sir Jonathan Ive as “beautifully, unapologetically plastic”, comes in a choice of five colours but has similar innards and functionality to the discontinued iPhone 5.
UBS reduced estimates for iPhone sales, saying the company would ship 158m units, compared to a previous estimate of 175m units. Not all commentators were downbeat. Four banks raised their price targets on Apple’s shares, including Nomura, which revised its bet on the share price from $420 to $480, according to Reuters.
