(Adds investors' comments)
By Ryan Vlastelica and Eileen Soreng
Sept 11 Apple Inc's new iPhones got
panned by Wall Street on Wednesday as investors decried one
model for being too costly for emerging markets such as China,
and dismissed the other model as lacking enough game-changing
The world's most valuable technology company missed an
opportunity to introduce a low-end smartphone to drive sales in
Asia, where Samsung Electronics and China's Huawei
have a wide lead over Apple, analysts say.
The plastic iPhone 5C unveiled on Tuesday will sell for
4,488 yuan ($730) in China, Apple said. That is more than the
average monthly urban income in China, and about double the cost
of mid-tier devices from Samsung and other vendors. The cheapest
phones in China, made by the likes of Xiaomi, go for about $100
"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, which manages about $58 billion in assets.
The high-end iPhone 5S disappointed Wall Street and revived
fears that Apple's most innovative days may be behind it. The
phone has a fingerprint scanner to improve security, but
analysts said that was not likely to be enough to make the
iPhone 5S a sure win in the crowded smartphone market.
"There was nothing transformational announced. It has the
fingerprint scan and new colors, but bigger features, like
different screen sizes, don't seem to be at the ready. This was
less than expected from a company that has a reputation for
surprising with a killer product or strategy," said Luschini.
Shares of Apple slid 5.4 percent to close at a month low of
$467.71 on the Nasdaq after at least three brokerages downgraded
their rating on the stock. Still, Apple remains
up 18 percent since the start of July, when anticipation about
the phones began building.
Apple executives - and the company's many fans in the
industry - maintain both iPhones are best-in-class. While the
corporation itself has not addressed the uproar over its iPhone
5C's price tag, some analysts say it's a good move to preserve
margins while leaving room for future reductions.
WAITING FOR CHINA MOBILE
China is critical to Apple's growth prospects as its biggest
market after the United States. Apple fell to No. 7 in the
second quarter in China with a 5 percent market share, losing
ground not just to Samsung but also to local rivals such as
Lenovo and ZTE.
Early signs point to a lukewarm Chinese response to the new
iPhones. Only 2.6 percent of 35,000 Chinese consumers surveyed
by Web portal Sina.com said they would consider buying the 5C.
"We worry that Apple's inability (or) 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.
Wall Street is banking on Apple securing a partnership deal
with China Mobile Ltd soon, granting the iPhone more
than 740 million potential buyers. Some investors were
disappointed that a deal was not announced on Tuesday.
Still, the iPhone 5C carries a total component cost of $165,
versus the $199 of the last-generation iPhone 5 and $236 for
Samsung's top-tier Galaxy S4 smartphone, according to IHS
iSuppli's preliminary estimates - suggesting there is room to
cut prices if warranted.
"Rather than offer attractive pricing for consumers, and
move the iPhone 5C into a new and growing price segment, Apple
retained a premium pricing strategy in targeting the $400-800
smartphone segment," Credit Suisse analyst Kulbinder Garcha
wrote in a note.
"This segment is not forecast to see meaningful growth long
term. This decision, at the margin, is good for profitability
but not growth."
Apple's profit for the quarter ended June 29 fell 22 percent
as gross margins fell below 37 percent from more than 42 percent
in the year-earlier quarter. Garcha estimated that Apple's share
of the global smartphone market would fall to 15.5 percent this
year and 13.1 percent next year, from 18.1 percent in 2012.
Some analysts said Wednesday's selloff in Apple shares may
have been overblown.
Nomura analyst Stuart Jeffrey said Apple may have ensured
stable margins for the next couple of quarters by pricing the 5C
in the United States at $99 with a contract and $549 without.
Saying the 5C was "nobody's low-margin phone," Cowen and Co
analyst Timothy Arcuri noted that Apple's new relationship with
Japan's NTT DoCoMo Inc plus the expected tie-up with
China Mobile supported the view that Wall Street's estimates for
Apple earnings in 2014 looked too low.
Arcuri said gross margins for the 5C appeared to be as high
as in the mid-50 percent area.
Raymond James and Associates maintained its "strong buy"
recommendation on the stock and raised its share price target to
$675 from $600, based on expected demand for the lower-end
iPhone, coupled with the NTT DoCoMo relationship and the
preservation of gross margins.
Canaccord Genuity kept its "buy" rating on the stock and
raised its target price to $550 from $530, citing Apple's
aggressive launch plans in more than 100 countries by year-end.
The brokerage also raised its 2014 estimate for iPhone sales
to 180 million units from 177 million.
(Additional reporting by Sinead Carew in New York and Neha
Alawadhi and Saqib Ahmed in Bangalore; Writing by Edwin Chan;
Editing by Ted Kerr, Steve Orlofsky and Ken Wills)