Multiple reports indicate Apple will announce both an upgrade to the iPhone 5, potentially called the iPhone 5S, and a new lower-cost version, possibly named the 5C. The latter is slated to be housed in a plastic case, and to ship in multiple colours. These reports remain based on speculation, backed up by numerous leaked photos, but confirmation waits for Apple’s announcements, rumoured to be due on 10th September.
The rationale for a lower-cost iPhone seems sound. Apple continues to dominate the smartphone market in the US, but in other parts of the world it is faring less well. In particular it lags in the largest phone market, China, where the company posted a 14% year-on-year decline in revenues in its 3rd quarter.
The last few iPhone cycles have seen Apple seek to address this by retaining older models at reduced prices – the 3GS remained in the lineup for two iterations, and the 4 is the current entry point. However there are three reasons why Apple may have chosen to break this cycle: build cost, Lightning and iOS 7.
Partly this is due to the largest carrier, China Mobile, not selling iPhones, but with the mass of Android-based options, branded or otherwise, Apple’s traditional price premium stands out even more starkly. Few phones are purchased with subsidised carrier contracts in China, which puts the iPhone out of reach for many consumers.
The iPhone 4 currently sells for $450 SIM-free in the US, and with its unique dual-glass construction, it is likely that Apple is struggling to remove more cost from its production. Even if initial pricing for a “5C” is similar, the right design would ensure a deeper price curve could be followed over time.
Secondly Apple is probably keen to make a clean break with the 30-pin connector. Apple launched the Lightning interface in September 2012 not only to move to a neater, smaller, reversible connector, but also to claw back some control of the accessories market. Both connectors are offered to third party vendors under the MFi license program, but Lightning includes stronger security, so is harder to clone, and easier for Apple to lock out cloned connectors with ongoing software updates. The iPhone 4 and 4S, together with the iPad 2 and iPod classic, are the sole remaining 30-pin devices, so it would seem highly probable for them drop off the price list in September.
Thirdly is the imminent launch of iOS 7, which delivers a lot more on iPhone 5 than on older hardware. Missing from iOS 7 on iPhone 4 for example is Panorama, Camera Filters, AirDrop, Siri, Maps Turn-by-Turn, and others. Introducing a new lower-cost phone rather than extending the life of an old model will bring a significantly better experience to iOS 7 (and probably better performance as well).
Assuming the speculation is correct, and we do see an iPhone “5C”, what will it sell for? History tells us that Apple does not do “cheap”. The iPad mini launched at $329 when sub-$300 was anticipated. With this new iPhone, when compared with the 4, we expect lower-cost casing, but a more advanced processor, and the iPhone 5-sized 4-inch screen. There may also be additional RAM on board.
Taking these into account, and assuming the specifications outlined are correct, we would expect to see a 16GB iPhone 5C launched at around $550 in the US, in line with the current iPhone 4S price. Apple is likely also to offer an 8GB version, at $449, which would be free with contract in many countries.
Katy Huberty of Morgan Stanley published research this week that suggests a sweet point for Chinese consideration of an iPhone 5 would be the equivalent of $486 – termed an “acceptable” price point in her survey. If she is right, and Apple does introduce a “5C” at these prices, and China Mobile carry it, things could look much more rosy for Apple this autumn, and not just in China.
Go iPhone
Go iOS 7
Go MFi Program
Go Katy Huberty on iPhone in China
Go China Mobile
