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Apple shares drop by more than 5% after new iPhone launch because investors fear the handsets - at $549 to $849 - are too expensive
Apple's shares fell more than 5 per cent on Wednesday, following the launch of its new iPhone 5S and iPhone 5C. The share price ended at a one-month low of $467.24 at midday after at least three brokerages downgraded the stock.
It is thought that investors were put off by the price of the handsets, especially the so-called 'cheap' iPhone 5C which starts at £469, claiming they weren't low enough for Apple to attract new customers, especially in emerging markets such as China.
Enlarge
At an event in Cupertino on Wednesday
morning, Apple's CEO Tim Cook and senior vice president of worldwide
marketing Phil Schiller unveiled two new handsets.
Apple's shares fell 5.4 per cent on Wednesday,
following the launch of its new iPhone 5S and iPhone 5C. The price ended
at $467.24 before rising marginally to $467.71. Investors were put off
by the £469 price of the iPhone 5C claiming it wasn't low enough for
Apple to attract new customers
The iPhone 5S is a high-end successor to the current iPhone 5 model and comes in gold, silver and slate, with a fingerprint scanner built into the 'home' button and starts at £549.
The iPhone 5C, which before the event was rumoured to be Apple's first 'budget' handset, comes in a range of five colours and has the same screen and camera as the current iPhone 5 model.
Cook also announced at the event that the firm would be discontinuing the iPhone 5 after the new handsets go on sale on 20 September.
Rumours had suggested that the price of the bargain phone would be around £63, yet the handset price starts at £469, which industry experts claimed was still too expensive for low-end customers.
Analysts also accused Apple of misleading customers by showing the handset costing $99 during the event, yet that price was on a two-year contract and monthly payments weren't announced.
WHY IS CHINA SO IMPORTANT TO APPLE'S SUCCESS?
Korean rivals Samsung is the leading smartphone manufacturer in the region, with Chinese brands including Huawei and Lenovo also popular.
Apple is still a popular choice in China, but predominantly with the Chinese elite, and Carl Howe, vice president of Yankee Group's Consumer Research group told ABC News: 'Rumor has [Apple] that they make more money in any of the five stores in China than they do in the Fifth Avenue store in New York.'
Apple phones in China cost around the same amount as the average person's monthly salary in urban areas, or three months wages for a bus driver, for example.
The 5S is due to sell in China for 5,288 yuan (£547) and the 5C for 4,488 yuan (£464) and the handsets, which will be available from 20 September, will be launched in China at the same time as other major territories for the first time ever.
Howe continued that although China is Apple's second largest market, there is a large percentage of the population that it is not able to attract.
Users questioned why anyone willing to fork out well over 4,000 yuan for a smartphone would not just pay a bit more for the premium 5S model.
Apple's share of the China smartphone market slipped to five per cent in the second quarter, according to research firm Canalys, behind not just Samsung but also Lenovo, ZTE, Huawei and Xiaomi Technology.
'Even though Apple has a lower end iPhone now, its price is still considered mid-end in China and not low-end,' said Sandy Shen, a Shanghai-based analyst for Gartner.
Around half of China's smartphone shipments are in the 700-1,500 yuan range, said Shen, but competing on those prices isn't an attractive prospect for Apple.
'Considering Apple's old rival Samsung and domestic players such as Huawei, Lenovo and Coolpad all have phones in that category, Apple will still lose out in market share in these key segments,' she said.
'Investors were put off that Apple's price point didn't go low enough to attract a new market. It doesn't have the same range in price that Apple's competitors have,' said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.
'It doesn't have the same range in price that Apple's competitors have,' he added.
'We believe Apple is foregoing a valuable and relatively easy way to return to earnings growth.'
Phil Schiller, Apple's senior vice president of
worldwide product marketing, unveiled the iPhone 5C on Tuesday. In the
U.S the device starts at $99 on a two-year contract yet experts have
called this misleading because monthly costs weren't announced. When
bought outright, the handset is $549, or £469 in the UK
Analysts predicted that Apple would be looking to boost sales in emerging markets, such as China, and this was bolstered by the fact Apple held a mirror event in Beijing, and announced the iPhone 5S will also be made available in China at the same time as other countries for the first time ever.
Rivals including Samsung and Huawei do well in emerging economies because their handsets are cheaper to produce, so cost less.
To put this into perspective, the 5C will sell for 4,488 yuan (£464) in China, which is more than the average monthly urban income for the country.
Apple's CEO Tim Cook, pictured, unveiled the
iPhone 5C in California on Wednesday. Analysts predicted Apple would be
looking to boost sales in emerging markets, such as China to rival
Samsung and Huawei, yet the 5C will sell for 4,488 yuan (£464), which is
more than the average monthly urban income for the country
Still, Apple's shares climbed 28 per cent between the start of July and Monday ahead of the launch as anticipation began building about the company's next iPhone.
Despite many investors being critical of the announcement, four others raised their target prices.
Nomura Equity Research increased its target to $480 from $420, for example.
Reaction among industry experts and consumers was mixed.
Apple's profit for the quarter which ended on 29 June, fell 22 per cent as gross margins fell below 37 per cent from more than 42 per cent in the year-earlier quarter.
UBS, which cut its rating on Apple's stock to 'neutral' from 'buy,' cited a survey of 35,000 Chinese consumers conducted by ChinaDaily.com that found only 2.6 per cent of respondents would consider buying the cheaper iPhone 5C.
'We worry that 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,' Sanford C. Bernstein analysts said in a note.
THE IPHONE 5S: FIRST IMPRESSIONS
'Apple's iPhone 5S is without doubt an evolution rather than a revolution.
'Despite this, the 5S is the best looking phone on the market, and the new champagne cover is surprisingly nice - and thankfully not as bling as it looks in some pictures.
'However, the most obvious addition is the phone's fingerprint sensor, which could render passwords and even bank PIN codes obselete.
'After spending around 90 seconds teaching it your fingerprint by moving your hand around, you simply tap where the home button is to unlock your phone.
'It’s simple, and, in limited testing, works flawlessly - although there are doubts over its ability to cope with sweaty hands.
'For anyone that has to use a passcode for their corporate email, the fingerprint sensor alone is a huge timesaver. It's also very fast - simply press to the home button, and the phone powers on and recognises you in under a second.
'The noticeably faster processor that makes it seem far snappier in use than 5 is also a decent step forward, as it the entirely redesigned camera which is a big improvement.'
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